Inside Markets — Macro Outlook

The ~12% rally from lows has erased the uncertainty discount with the SPX now trading at ~21x forward estimates. Trade de-escalation is a positive development, but the macro-outlook remains highly uncertain, and equities (US and global) are not currently priced for a recession or a slowdown. This probably skews fundamental risk/reward to the downside while positioning (sidelined cash at record levels) and sentiment (extreme bearish levels) keep the near-term pain trade skewed to the upside.

The SPX has rallied ~12% off the April 8 low and managed to clear the April 2 breakdown from 5650. Unfortunately, another important cluster of resistance sits just overhead in the 5750-5785 range with still-elevated equity volatility (VIX >22) as a headwind. That narrow zone contains (in order of least to most significant) the 200-day moving average, initial March rebound high and the 3% error band around the 52-week VWAP for the SPY. The SPX is now in short-term overbought territory and a period of consolidation from current levels is the most likely near-term path. While our preference is to add equity exposure at short-term oversold levels, we’d respect the price action of an upside break.