Inside Markets — Month-End Rebalancing

Month-end rebalancing likely played a role in yesterday’s fade from best levels, with the SPX now short-term overbought and in need of consolidation. The gap through 5750-5785 put the SPX back into a low-volatility bullish regime where pullbacks are opportunities to add exposure. Key support for this view is ~5600. A period of gentle consolidation to oversold levels would be a bullish near-term development.

With the SPX currently trading at ~22x forward earnings, a bullish outlook requires upside estimate revisions. Q1 earnings season was better than expected, while qualitative remarks from management teams (especially Tech) at sell-side conferences this month suggest a good amount of cushion has been baked into H2 guidance in the event of a macro slowdown. If a slowdown does not materialize, we would expect to see material upside earnings revisions in the back half of the year. We also see geopolitical competition as a longer-term driver for the US economy and SPX earnings growth.