Inside Markets

Yesterday’s risk-on rally and all-time high (ATH) in the SPX and NDX followed a Goldilocks ISM services print (improved headline number/lower prices paid) after two weeks of disappointing economic data.

The SPX and NDX are threatening new highs as bond yields break below moving average support.

The US equity narrative may be starting to evolve with increased concern for the growth outlook.

The prevailing narrative has shifted from Goldilocks (resilient growth, lower inflation, rate cuts) to ‘soft landing’ (slow growth, lower inflation, rate cuts) over the last three weeks.

A pullback scenario in the 4-5% range is a normal occurrence (~3x/year) in equity markets, while corrections in the 10-15% range usually require a sizeable change in macro fundamentals.

Pressure on equity markets from rising bond yields continue, but is unlikely to generate significant downside unless/until 10-year yields break above ~4.75%.

We turn incrementally cautious as market leadership narrows amid rising bond yields.

The SPX is short-term overbought and should make its way to oversold status within two weeks by our estimates.

This afternoon’s NVDA report is a major catalyst for equity markets given the dominance of AI in the bullish narrative.

We keep a near-term bullish tactical outlook on the SPX at levels north of 5060 with an upside price objective of 5415.