Strykr Analysis
BullishStrykr Pulse 67/100. Main Street resilience trumps Wall Street fear. Threat Level 2/5.
While Wall Street obsesses over war premiums and AI bubbles, the real story is unfolding far from the trading floor. In February, US business equipment borrowings jumped +14.2% year-on-year, according to the Equipment Leasing and Finance Association (ELFA), a surge that’s gone largely unnoticed by the macro commentariat. This is not just a quirky data point. It’s a signal that Main Street is still betting on growth, even as the S&P 500 stumbles and the Fed threatens to keep rates higher for longer.
Let’s get granular. The ELFA report shows independent lessors driving the charge, with small and midsize businesses leading the borrowing binge. This is not just tech companies loading up on AI servers. It’s trucking firms, manufacturers, and logistics players, real economy actors betting that demand will hold up despite the macro headwinds. The S&P 500 may be down -7.7% since the Iran war started, but Main Street is not blinking.
The timeline matters. In the last six months, equipment lending has accelerated even as credit spreads widened and banks tightened standards. The fact that borrowing is up double digits in this environment is remarkable. It suggests that businesses are either desperate or confident. The data points to the latter. Delinquency rates remain low, and default rates have not spiked. The ELFA’s CEO said, “The equipment finance industry continues to show resilience in the face of persistent headwinds.”
Historically, spikes in equipment lending have been a leading indicator for capex cycles and, by extension, economic growth. In 2010 and 2017, similar surges preceded periods of above-trend GDP growth. The difference now is the inflation backdrop. With oil above $100 and the Fed in hawkish mode, the risk is that this credit boom turns into an inflationary bust. But for now, the data is clear: businesses are still investing, and the real economy is not rolling over.
The macro context is messy. The closure of the Strait of Hormuz has everyone worried about stagflation, but the real inflationary pressure may be coming from Main Street, not the Middle East. The Fed’s preferred inflation metrics are sticky, and wage growth is still running hot. If equipment lending is a proxy for business confidence, then the market is underestimating the resilience of the US economy. The next Non-Farm Payrolls report will be a critical test. If job growth holds up, expect the Fed to stay hawkish, and for the market to reprice the odds of a soft landing.
The risk, of course, is that this credit binge ends badly. If rates stay high and demand falters, businesses could find themselves overleveraged. The last time equipment lending grew this fast was in 2007, and we all know how that ended. But for now, the data is not flashing red. Delinquencies are stable, and the real economy is still humming.
Strykr Watch
From a technical perspective, watch the credit spreads on equipment-backed ABS (asset-backed securities). The spread between AAA and BBB tranches has narrowed in recent weeks, signaling investor confidence. In equities, keep an eye on the Russell 2000, which is heavily exposed to small-cap industrials and transports. If the lending surge is real, these stocks should outperform. The next big catalyst is the Non-Farm Payrolls report on April 3. A strong print will validate the bullish thesis, while a miss could trigger a risk-off move.
On the macro side, monitor the Fed’s rhetoric. If Powell signals concern about Main Street inflation, expect a hawkish repricing across rates and equities. The CFTC’s speculative positioning data on Friday will also be key. If speculators are net short, a squeeze could be in the cards.
The bear case is straightforward. If oil prices spike further and the Fed tightens into a slowdown, the credit cycle could turn abruptly. Watch for signs of rising delinquencies or a sudden widening in credit spreads. If the Russell 2000 breaks below key support, it’s time to reassess.
The opportunity is in the divergence. The market is pricing in recession risk, but Main Street is still borrowing and investing. Long small-cap industrials and transports, paired with a short on consumer discretionary, could capture the spread. For credit traders, buying senior tranches of equipment ABS offers yield without taking on excessive risk. For the bold, a steepener in the Treasury curve could pay off if growth surprises to the upside.
Strykr Take
Ignore the noise from Wall Street. The real economy is still moving, and equipment lending is the tell. As long as Main Street keeps borrowing, the risk of an imminent recession is overblown. The market will catch up to the data, not the other way around.
Sources (5)
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