Inside Markets — Buyer Exhaustion

US equities are mostly higher after a quiet session yesterday ended with all three major indices advancing more than 1%. The SPX closed above its 50-day moving average at ~5130, which temporarily removes incremental CTA selling pressure from the list of concerns. This sets the stage for a test of late-March all-time high at 5254.  About 80% of SPX companies have already reported earnings and the apparent lack of reward for earnings beats and outsized punishment for misses is a sign of buyer exhaustion. In our opinion, an upside break in the SPX now depends on lower bond yields that signal a change of trend.  In 10-year terms, sustained closing levels below 4.31% would constitute a change in trend, but the SPX may be able to hurdle the old high on anything below 4.38%.

There are no meaningful scheduled catalysts until next Tuesday’s April PPI report.  Wednesday’s CPI print is more important, but markets will take directional cues from Tuesday’s report.  A lack of meaningful catalysts usually results in trend continuation, which implies gentle near-term upside in the SPX until investors reduce risk immediately ahead of the event.

The recent batch of soft economic data has driven hope for renewed traction on disinflation with Wednesday’s CPI report as the critical near-term measuring stick.