The S&P 500 has been rangebound since early-April with leadership shifting between growth and value sectors. The recent, mild softening in US economic data has 10-year Treasury yields retracing to support near ~1.55% and equity investors shifting back to a growth/Tech bias.
Last week’s pickup in Eurozone flash PMI data has the region looking like a complimentary growth engine to the US expansion. The Eurozone doesn’t have the same kind of fiscal stimulus but has a much larger bounce coming from its reopening.
Momentum is a popular input for the vast majority of systematic factor models. As the economy continues to recover, the 12-month momentum factor will begin picking up more and more value sector correlation as the worst days of value performance fall out of the 12-month
PMI is a forward-looking diffusion index with levels above 50 implying expansion and levels below implying economic contraction. The distance on either side of 50 is a measure of velocity.
At the moment, we see none of the internal and/or cross-market signals that usually precede meaningful equity correction. Last Wednesday, the S&P 500 (SPX) successfully tested its rising 50-day moving average and 38.2% retracement at ~4055.
The next catalyst for bond yields will be the release of US and Eurozone flash May PMIs this Friday. The number will be an important input for bond yields and equity sector performance, but better than expected PMI probably won’t be enough to lift US
Stay focused on value sectors (Financials, Materials and Energy), small-cap indices like the Russell 2000 (RTY) and value stocks within retail.
Some of today’s big upside CPI print can be attributed to base effects, meaning the magnitude will likely prove transitory, but pricing pressures look like they’ll persist. The index for used cars and trucks increased 10.0% during the month (biggest monthly increase since the series
We’re seeing supply constraints because demand is so strong with the next major data point due this Friday with the release of April US retail sales. The latest news outside the US showed a significant pickup in growth throughout Europe during March and April.
Bond yields are lower this morning, but the value trade continues to outperform as attention stays on improving PMI data. Tomorrow’s release of April services PMI will likely be an important input. Consensus is looking for Eurozone services PMI to come in at 50.3 and
