Inside Markets — New Phase

Equities have likely entered a brief but bullish phase when good news/data is good and bad news/data is ignored.  The last major update on the US economy was the April Jobs Report, which revealed no negative impact yet from the trade war.  And any near-term data that does reflect weakness may get a pass if it was collected prior to the 90-day US/China trade agreement.  Consider that the 90-day window with China likely results in another pull forward of demand, which provides more time to secure other trade agreements that include increased investment (purchases of goods) in the US.  This scenario will likely result in reduced recession risk, which means upward revisions to FY’25 earnings estimates and near-term upside for the SPX.

Increased macro uncertainty creates a wider distribution of possible outcomes that undermines the reliability of fundamental forecast models.  Reduced conviction in fundamental forecasts results in more reliance on technical factors, which currently look skewed to the upside.  Positioning remains light and sentiment remains bearish in the face of positive fund flows as the corporate buyback window remains open for ~70% of the SPX over the next few weeks.  The SPX is on track today to confirm a break above technical resistance in the 5750-5785 range and volatility is no longer a headwind for rally attempts with the VIX receding to subdued levels below 20.  The initial move out of the gate will eventually fade but from a technical perspective, the downside may be limited as ‘old resistance becomes new support.’