US equities are mostly higher after the S&P 500 ended yesterday up more than +20% from its 52-week low in October, meeting the technical definition of a bull market as the index attempts to break above the August high near 4305.
Yesterday, the S&P 600 small cap index (SML) managed to close above the upper end of its March-May range, giving us incremental confidence in the durability of the cyclically-led rally
The probability of a June Fed rate hike increases to 40% after surprise hikes from RBA and BOC.
US equities are mostly higher with the Russell 2000 (RTY) and equal-weight S&P 500 (RSP) outperforming as the disinflation theme continues to gain traction.
Today’s ISM services report fits the disinflation narrative that reemerged in mid-April. Last week’s string of disinflationary May prints point to an intensifying trend that should begin to show up in headline CPI.
The upside in equity markets this week can partially be attributed to a string of disinflationary reports including cooler than expected Eurozone CPI and the large drop in ISM prices paid.
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.
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%.
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.
Headlines suggest the two sides remain nowhere near an agreement, with the market-based probability of default at ~25% and rising.
