Inside Markets

The recent pro-cyclical rotation accelerated yesterday with the cyclical/defensive ratio pushing to the high end of its 12-month range.

Previews for next Wednesday’s FOMC meeting cite the potential for equity market downside in the event of a 25bp cut with hawkish forward guidance.

CTA equity positioning has returned to neutral levels (50th percentile as of last Friday) after reaching the 99th percentile in late October.

The rotation into retailers (hard/soft lines) and transports (truckers/airlines) continues with relatively upbeat headlines regarding Black Friday shopping trends helping both groups this morning.

A bullish fundamental outlook still requires resilient macro conditions, above-trend earnings growth and fading trade tensions.

The main catalyst for the recent backup in equity markets was the hawkish cut at the October Fed meeting.

The recent momentum factor unwind has likely run its course with a peak-to-trough decline of ~13% as of last Thursday.

The latest bout of AI skepticism is mostly based on OpenAI’s extremely ambitious capex plans and the new use of hyperscaler debt issuance to fund incremental data center buildouts.

NVDA has been consolidating for the last three weeks and is back to levels following its strong August print.

The sentiment-driven pullback saw the SPX close below its 50-day moving average yesterday for the first time since early May.