Inside Markets — Cyclical Leadership
The S&P 500 (SPX) is trading above 4200 with cyclical leadership and broad sector participation. The improvement in market internals is encouraging, but closing levels are more important.
Inside Markets — Bond Yields
The 2-year Treasury yield is reversing from technical price support in the 4.51%-4.59% range. The 10-year note has reversed from similar support near 3.85%, and the 30-year bond fades from price support at 4.00%.
Inside Markets — Macro Backdrop
Assuming the debt ceiling agreement is passed this week simply means that market attention will shift back to the challenging macro backdrop. US inflation data remains elevated, global manufacturing PMIs are in contraction and China activity data is rolling over.
Inside Markets — Default Probability
Headlines suggest the two sides remain nowhere near an agreement, with the market-based probability of default at ~25% and rising.
Inside Markets — Risk Off
Yesterday’s risk-off trade occurred 10 days before the estimated debt ceiling x-date of June 1. The timing of the sell-off matches the timing from the 2011 episode that came down to the wire, but still resulted in a US sovereign credit rating downgrade.
Inside Markets — Thin Leadership
The S&P 500 (SPX) has extended to the upper end of technical pattern resistance near 4200 with thin leadership in mega cap Tech and Comm Services. Thin leadership typically occurs at the end of a cycle and the preference to own the largest stocks is
Inside Markets — Debt Ceiling Scenario
A short-term extension to August is the most likely scenario given the estimated ex-date of June 1 and time required to produce a bill.
Inside Markets — Consumer Spending
A BofA consumer report for April showed total card spending per household fell -1.2% YoY, which is the first YoY decline since February 2021. The reports showed unemployment rising fastest among high-income households.
Inside Markets — Fed Pause
A Fed pause is only bullish for stocks when it occurs in a low inflationary environment. We continue to think that a full Fed pivot is required in order to drive the S&P 500 (SPX) through ~4200.
Inside Markets — Debt Ceiling
The debt ceiling ex-date has been pulled forward by ~2 months due to lower tax receipts, presumably due to lower capital gains realizations. The new ex-date is assumed to be June 9.