Morning Notes — OIS Forward Curve
Ten-year bond yields fell ~24bp last week to 2.75%, reflecting increased recession worries. Following lagging indicators like GDP for signs of a recession will get you nowhere.
Morning Notes — Outlook and Catalysts
The S&P 500 (SPX) cleared near-term technical resistance in the 3950-3970 range yesterday with a position squeeze potentially postponed as disappointing overnight results in social media/Tech (combined SPX weight of 36%).
Morning Notes — Short-Term Technical Hurdle
Aggregate Q2 management commentary on the state of the US consumer suggests some weakening in lower income consumers, but mostly just to normal, pre-pandemic levels.
Morning Notes — SPX Levels
The S&P 500 (SPX) is butting up against intervening resistance in the 3950-3970 range with a breakout likely to result in a position squeeze to ~4100.
Morning Notes — Trough
The S&P 500 needs to clear resistance at 4150-4200 to build a bullish technical outlook over the intermediate term. Near-term technical resistance sits in the 3950-3970 range and clearing this level would likely get us to ~4100.
Morning Notes — Catalysts Ahead
The S&P 500 remains in a narrow range between ~3720-3910. A push above 3950 would still be considered part of a reflex rally that followed extreme oversold conditions
Morning Notes — Peak Inflation
Sell-side research analysts should be done with one-year forward estimate cuts by the end of Q2 earnings season (end of August/early-September). Market cycles follow a pattern, and year forward estimate cuts often act as clearing events for investors with a 12-24 month outlook.
Morning Notes — Relative Strength
The current higher than ‘neutral’ terminal Fed rate is a challenge for equity markets. The Fed follows longer term inflation expectations but reacts to realized inflation (CPI/PCE). Note two-year inflation breakeven yields have declined from a peak of ~490bp in late March to ~290bp today.
Morning Notes — Discounting Q1’23
We expect sell-side analysts to complete 2023 earnings revisions by August/September, and by Q4 equities will be fully discounting economic risks well into ’23.
Morning Notes — Catalyst Ahead
Better-than-feared early Q2 results amid defensive positioning and extreme bearish sentiment could result in a squeeze higher. We continue to see the 4150-4200 level as strong technical resistance, with a break above requiring a terminal Fed rate target below 3% (now 3.45%).