
Inside Markets — Goldilocks
Yesterday’s dovish Fed comments, small uptick in consumer confidence and better-than-feared early holiday shopping trends has started early rotation into cyclical equity groups like banks, REITS, autos and housing.
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Yesterday’s dovish Fed comments, small uptick in consumer confidence and better-than-feared early holiday shopping trends has started early rotation into cyclical equity groups like banks, REITS, autos and housing.
Month-end rebalancing dynamics are in play with pension funds better to buy bonds given performance differentials.
A US soft landing in 2024 is the prevailing narrative with risks skewed toward a potential recession.
A recent sell-side report suggests that crowding across hedge funds has reached a record high with the average fund holding
A recent sell-side report suggests that crowding across hedge funds has reached a record high with the average fund holding
Last week’s cooler-than-expected CPI print increased conviction that the Fed is done with its hiking cycle, resulting in equity upside
We expect 10-year yields to remain above our 4.48% bullish inflection target for the remainder of Q4.
The pullback in bond yields has been the main driver behind the week-long relief rally in equities.
The pullback in bond yields has been the main driver behind the week-long relief rally in equities.
The pullback in bond yields has been the main driver behind the week-long relief rally in equities.
The pullback in bond yields has been the main driver behind the week-long relief rally in equities.
Yesterday’s equity rally carries over as 10-year yields sink below 4.70% after the Treasury announced plans to slow the pace
The pullback in bond yields keeps a tenuous relief rally in the conversation, but the move falls short of signaling
Today’s dip in longer-dated bond yields follows a relatively benign BOJ policy outcome.
The lack of a broadening Middle East conflict and oversold conditions drive today’s bounce in equity markets.
Earnings are in focus after an unusually high number of overnight disappointments.
Elevated Treasury supply and waning demand remain primary drivers of the higher bond yield environment.
This morning’s reprieve in bond yields is helping the CBOE Volatility Index (VIX) come off highs approaching our ‘elevated’ threshold
The backup in bond yields became dislocated from their fundamental drivers about three weeks ago.
Takeaways from Powell’s anticipated address to the Economics Club of NY seem a bit more dovish than the consensus message
Geopolitical concerns are getting more attention after an explosion at a Gaza hospital complicates diplomatic efforts to ease the Middle
A resumption in the yield backup follows a hotter-than-expected September retail sales number.
The end of a Fed hiking cycle once inflation is vanquished should be positive for risk assets. Equities have reacted
An end of the hiking cycle doesn’t mean the tightening cycle is over. Ongoing QT operations by the Fed and
An end of the hiking cycle doesn’t mean the tightening cycle is over. Ongoing QT operations by the Fed and
Two weeks ago, the backup in bond yields disconnected from fundamental drivers of inflation expectations, growth data and Fed expectations.
A blow-out non-farm payroll number of +336,000 is combined with smaller wage gains to breathe temporary life into the soft-landing
The focus remains on the recent backup in bond yields with markets in waiting mode ahead of tomorrow’s Jobs Report.
The S&P 500 (SPX) extended its recent pullback yesterday toward its 200-day moving average and bullish inflection at ~4200.
The $1.9T of additional pandemic-related fiscal spending in the spring of ’21 was unnecessary and reckless given that US manufacturing
This morning’s release of US core PCE and Eurozone CPI fail to shift an emerging stagflation narrative.
This morning’s release of US core PCE and Eurozone CPI fail to shift an emerging stagflation narrative.
The move in yields has been linked to the Fed’s higher-for-longer message, an extension of the rally in crude prices
The SPX is down ~7% from its YTD high on July 31 as 10-year Treasury yields have risen from 3.96%
Investment Grade, High Yield and Emerging Markets CDX credit spreads continue to widen as a possible sign of emerging credit
Today’s curve steepening takes the 5/10 yield spread to -8bp with technical resistance at -7bp. A break above -7bp would
US consumer strength has been a major reason to doubt near-term recession risk all year, but some cracks are beginning
Today’s risk-off trade follows yesterday’s Fed meeting and updated dot plot that removed 50bp of easing expectations in ’24.
Almost all developed markets have been forming bearish distribution patterns over the last two months and the small-cap Russell 2000
It’s otherwise quiet into tomorrow’s Fed decision with OIS markets still pricing in a pause, while the probability for another
The Fed is widely expected to pause at this week’s meeting. The updated dot plot seems to be the wildcard
The NY Fed’s Empire manufacturing survey was stronger than expected, with new orders and prices received surprising to the upside.
This morning’s August CPI print did little to shift the inflation narrative in either direction. Headline CPI came inline, up
This morning’s August CPI print did little to shift the inflation narrative in either direction. Headline CPI came inline, up
Implied equity volatility has been a nonfactor for markets since late March, which is why we’ve added it to the
In our opinion, the near-term bullish narrative first needs to include an implicit or explicit announcement from the Fed that
A combination of rising oil prices and heavy corporate bond issuance on Tuesday plus yesterday’s stronger ISM services report will
ISM services for August came in stronger than expected with new orders, employment and prices all higher MoM. The data
September always brings a lot of discussion about seasonality given that it’s the worst performing month of the year. But
Yesterday, 10-year bond yields reached our near-term target of ~4.09% intraday, while the 5-year yield has dipped but remains above
Systematic funds should be net-buyers of equities given subtle changes in technical conditions.
Bond prices and stock prices are positively correlated at the moment because inflation remains elevated.
Yesterday’s call for lower yields and curve steepening arrives right on schedule with today’s sharp drop in job openings adding
US equities will continue to take direction from bond yields with expectations for downside in 5-year yields to steepen the
Attendance will remain light through Labor Day as we enter a catalyst vacuum over the next week, which we expect
Financials declined ~1.9% yesterday as Fitch warned about potential debt rating downgrades for large US banks.
The S&P 500 (SPX) has slipped to first level technical support in the 4438-4460 range with the index currently sitting
The S&P 500 (SPX) posted a second consecutive weekly decline with cyclical sectors underperforming defensive groups by 5.5% last week.
Cooler-than-expected June CPI and PPI from July made disinflation a major part of the consensus narrative.
This morning’s CPI print mostly supports the disinflation theme and keeps the focus on the outlook for the Fed’s hiking
Equity markets fully embraced the disinflation theme following a cooler June CPI print, but investors now seem a bit hesitant
The recent widening in credit spreads should be closely followed in the days ahead. Recession risk has been priced out
Last week’s pullback in equity markets was driven by a volatile week in the bond market. The volatility may have
We’ve recently intensified our focus on a 60-day tactical window based on a growing expectation for the Fed to end
Steep curve inversion and tepid US growth data from Q4’22-Q1’23 generated consensus for an imminent recession and led to a
Fitch explained its US credit rating downgrade as “expected fiscal deterioration over the next three years.
Yesterday’s Senior Loan Officer Opinion Survey (SLOOS) pointed to tightening lending standards and low demand.
Ten year yields still look like they peaked last October at 4.2%. A new high in the 10-year yield would
Yesterday’s stronger Q2 GDP print, firmer durable goods orders and lower weekly jobless claims number resulted in higher bond yields.
The S&P 500 (SPX) is currently trading above technical resistance near 4565. Closing levels north of 4567 would likely deliver
Yesterday, the S&P 500 (SPX) managed to close at our predetermined technical watershed level of 4567. Closing levels above 4567
Markets are priced for a 25bp rate hike and a message that signals a pause in the hiking cycle. The
We suspended our tactical bearish bias back in early June based on improved market breadth, cyclical sector leadership and a
US equities are mostly higher after yesterday’s sell-off in mega-cap Tech took the Nasdaq 100 (NDX) down more than 2%,
The S&P 500 (SPX) has reached the upper end of technical resistance in the 4515-4565 range. A close above 4567
The S&P 500 (SPX) has reached the upper end of technical resistance in the 4515-4565 range. A close above 4567
The macro narrative continues to shift toward a soft landing after yesterday’s Empire Fed manufacturing index came in better than
The Fed has entered its blackout period ahead of the July 26th FOMC meeting, but former Vice Chair Clarida said
Jackson Square Capital is pleased to announce that we have been named one of America’s Top RIA’s from Financial Advisor
US equities are mixed with the S&P 500 (SPX) on track for a +2.7% weekly gain. The equal weight S&P
It’s possible that central banks may be underestimating the potential pace of global disinflation.
Inflation remains top of mind as the initial equity market reaction to today’s CPI print matches our scenario analysis from
Tomorrow’s June CPI report is an important catalyst for markets with consensus looking for a headline number of +3.2%, down
Friday’s softer non-farm payroll number was the first miss after 14 consecutive months of hotter-than-expected readings.
The S&P 500 (SPX) decelerates on its approach to technical resistance in the 4515-4535 range as the rally shows signs
Today’s advance in 2-year yields drives the risk free rate beyond the earnings yield on the SPX. Using Bloomberg consensus
The soft landing narrative is challenged as weaker factory orders number lead to the first downtick in the US Economic
The S&P 500 (SPX) has been able to keep its upward momentum despite rising bond yields. Over the last six
US data is back in focus after a steep drop in weekly jobless claims and big upward revision to Q1
Mixed messages inform the near term SPX outlook. The overbought status we referenced for the S&P 500 (SPX) on Friday
The primary driver this morning is US economic data that is better than expected. May durable goods orders posted an
Equities are starting the week mostly lower into month-end and quarter-end rebalancing. Given the recent rally in equities and sell-off
US, Eurozone and UK flash manufacturing PMI missed expectations and fell deeper into contraction, while services held up better. The
Tomorrow brings flash PMIs for June which will provide incremental guidance on the growth outlook. Expectations are for US flash
Markets are waiting for a traditional recession or soft landing to follow the Fed’s tightening cycle, but there may be
As the S&P 500 has rallied +6.8% over the last five weeks to technically overbought levels, consider markets can stay
The S&P 500 has gained +5.7% since the index broke technical resistance at ~4200. Thin leadership and narrow breadth on
We are pricing for a pause although the market-based probability of a July rate hike rises to 67% after yesterday’s
Markets wait on today’s Fed policy decision at 11am PT followed by Powell’s press conference at 11:30. We expect the
Widening market breadth beginning in late May removes a key technical concern for the sustainability for the rally. Participation from
Consensus is looking for YoY headline CPI to drop to +4.1% from 4.9% last month and the core rate falling
US equities are mostly higher after the S&P 500 ended yesterday up more than +20% from its 52-week low in
Yesterday, the S&P 600 small cap index (SML) managed to close above the upper end of its March-May range, giving
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
Today’s ISM services report fits the disinflation narrative that reemerged in mid-April. Last week’s string of disinflationary May prints point
The upside in equity markets this week can partially be attributed to a string of disinflationary reports including cooler than
The S&P 500 (SPX) is trading above 4200 with cyclical leadership and broad sector participation. The improvement in market internals
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
Assuming the debt ceiling agreement is passed this week simply means that market attention will shift back to the challenging
Headlines suggest the two sides remain nowhere near an agreement, with the market-based probability of default at ~25% and rising.
Yesterday’s risk-off trade occurred 10 days before the estimated debt ceiling x-date of June 1. The timing of the sell-off
The S&P 500 (SPX) has extended to the upper end of technical pattern resistance near 4200 with thin leadership in
A short-term extension to August is the most likely scenario given the estimated ex-date of June 1 and time required
A BofA consumer report for April showed total card spending per household fell -1.2% YoY, which is the first YoY
A Fed pause is only bullish for stocks when it occurs in a low inflationary environment. We continue to think
The debt ceiling ex-date has been pulled forward by ~2 months due to lower tax receipts, presumably due to lower
The technical setup for the S&P 500 remains challenging into strong resistance in the mid-4100s. Bearish momentum divergence seen on
This morning, the 5/10-year yield curve flipped into positive territory for the first time in 9 months. A positively sloped
Two of the three most likely Fed scenarios would likely result in upside for the S&P 500. Though the probability
The probability for a technical US debt default remains below 10%, but the likelihood for a credit rating downgrade may
The S&P 500 is extending to the upper end of its technical resistance range below 4200. A sustained break above
Bearish momentum divergence signals triggered at the end of last week while the index was overbought. The positive YTD performance
Today’s risk-off trade follows bearish momentum divergence signals late last week. The S&P 500 was in technically overbought territory when
Afternoon results from FRC will impact near-term regional bank sentiment. Relatively stable deposit flows and unchanged loan growth guidance are
Takeaways from the earliest Q1 reports reveal strength in high-income consumer spending and travel demand.
Signs of easing banking sector stress has resulted in a return of the soft-landing narrative, higher bond yields and more
Light equity positioning and elevated bearish sentiment have been major supports for equity markets in the recent past.
The recent backup in bond yields looks like normal consolidation in a developing bullish trend. The term ‘bullish trend’ refers
We’ve been saying for several weeks that strong technical resistance in the mid-4100s should cap the S&P 500 (SPX) until
The ISM new orders/inventory ratio has been signaling accelerated PPI disinflation for the last several months. Producer prices tend to
The debate over a 25bp May rate hike is less important than the disconnect between Fed rhetoric and market expectations
It’s a relatively quiet session as market participants wait for directional clues in tomorrow’s CPI report and Fed meeting minutes.
The major catalyst this week is Wednesday’s CPI print, which should provide more clarity for the Fed’s expected near-term policy
An expected collapse in bank credit creation should accelerate the disinflationary cycle. Every bank wants to exit Q1 with more
Bond prices and equity prices have been positively correlated for the last 14 months. Over the long run, these two
The S&P 500 (SPX) has moved into a strong technical resistance range between 4050-4200 with a challenging fundamental backdrop. Breaking
The S&P 500 (SPX) has moved toward strong technical resistance in the mid-4100s. We expect this range will cap the
The S&P 500 (SPX) is advancing toward technical resistance in the 4100s on strong growth sector leadership. The rotation into
Calls for increased bank regulations fit the disinflation and recession narrative, driving the rotation into growth equity sectors.
There was no obvious catalyst for yesterday’s pullback other than the end of Washington hearings on recent bank failures without
FCNA’s acquisition of SIVB assets and deposits has helped near-term risk sentiment, but markets are still looking for additional policy
Recent equity market resilience has been driven by lower bond yields and rotation into growth sectors. Sidelined cash and value
Credit standards have been tightening over the past year as banks anticipate a recession. The tightening of credit standards will
A week-long back up in 5-year Treasury yields stalls out at moving average price support near 3.80%. The decline in
In addition to the Fed decision, markets will pay close attention to Powell’s press conference for: 1) near-term direction on
The debate over whether the Fed hikes by 25bp or decides to pause at tomorrow’s meeting seems less important when
A de facto end of the tightening cycle has driven bond yields and kicked off equity rotation into growth sectors
Rotation into growth from value sectors began late last week after 10-year real yields reversed from strong technical resistance at
Bond market volatility has spilled into equity markets and other cross markets amid low liquidity conditions. Implied equity volatility as
Silicon Valley Bank’s failure highlights the pressure of rising funding costs. The Fed backstop on deposits at SIVB and SBNY
The Fed’s decision to provide liquidity has markets speculating the central bank may elect to leave rates unchanged when it
Yesterday, we discussed the negative impact on bank deposits and assets from the Fed’s QT operations. The Fed’s QE program
In a clear signal from banks, US large cap and regional bank indices are down ~10% for the week after
Multiple factors combine to create a challenging outlook for equities. Yesterday’s testimony from Fed Chair Powell triggered a ~1.5% sell
Longer-dated bond yields have limited room to lift from current levels given hawkish rate expectations and the potential for a
US equities are mostly higher into a busy week of macro catalysts.
At current levels, the S&P 500 (SPX) is essentially unchanged from where it stood last April when terminal rates were
At current levels, the S&P 500 (SPX) is essentially unchanged from where it stood last April when terminal rates were
Short-term support is in focus as the global disinflation cycle is challenged by recent hotter-than-expected inflation data including US ISM
February US growth data disappoints for a second day with consumer confidence, Chicago PMI and Richmond Fed Index all missing
A higher median dot coming out of the March 22 Fed meeting is the most apparent near-term risk for equity
. Bond markets are larger and more liquid than equity markets, so when there’s a disconnect between the behavior in
A downward revision to Q4 GDP and upward revision to Q4 PCE inflation have investors cautious ahead of tomorrow’s core
Ten-year Treasury yields are approaching resistance near 3.90% where we expect mean reversion to kick in and pull yields back.
The no-landing narrative that emerged after the strong January payroll number drives a cyclical recovery theme in equity markets.
The recent resilience of the S&P 500 (SPX) amid the bearish repricing of Fed rate expectations comes from an emerging
As we noted yesterday, we’re discounting the signal quality of the January payroll data given the outsized role of seasonal
Let’s review potential CPI scenarios as equity markets will take initial direction from headline CPI, due tomorrow.
US equities are mixed with the S&P 500 on track for its worst week of 2023.
Catalysts ahead include Michigan inflation expectations and two Fed speakers tomorrow, but markets remain focused on Tuesday’s CPI report.
Terminal rate expectations drift higher as Fed officials answer questions about last week’s strong Jobs Report.
The focus today is on Fed Chair Powell’s comments at the Economic Club of Washington.
Last week, the S&P 500 (SPX) extended through near-term technical resistance at 4100 as the OIS market began pricing in
The S&P 500 (SPX) has extended beyond the upper-end of technical resistance at 4100, despite a still challenging fundamental and
Catalysts ahead include mega-cap earnings this afternoon and tomorrow’s Jobs Report, all of which will likely have a material impact
Monetary factors are at the center of the current market narrative, with equity upside yesterday driven by a weaker-than-expected Employment
A 25bp rate hike tomorrow is already priced into the OIS forward market along with 25bp expected in March before
China reopening optimism and expectations for an imminent Fed pause have combined to form an emerging ‘soft-landing’ scenario often cited
At 4025, the S&P 500 (SPX) is currently trading above its 50, 100, 200 day moving averages and above the
The S&P 500 (SPX) was unable to hold key momentum levels earlier in the week after weaker-than-expected data challenged the
We may be entering a new phase as the disinflation narrative is now consensus and a still-hawkish Fed drives concerns
Bonds and stocks have been positively correlated over the last 12 months, and today’s bifurcation may reflect growing concerns for
The S&P 500 outlook is in focus as the index has gained over 4% to start the year and is
Quiet overnight headlines ahead of tomorrow’s CPI report and Friday’s start of calendar Q4 earnings season. Trends this morning are
CPI scenarios are in focus as we await the macro event of the week. Options markets are currently priced for
Friday’s inline payroll gain and softer than expected wage number fit the rarely seen soft landing scenario.
December non-farm payrolls came in slightly above expectations and the Unemployment Rate declined, but softer wage gains have dovish implications
Terminal rate expectations may come down as job market softens. Anecdotal evidence of a softer jobs market continues to build,
Today’s encouraging inflation data interrupts two weeks of catalyst-free trend continuation that resulted in the S&P 500 (SPX) reaching short-term
We’d like to extend a warm New Year greeting with optimism for the year ahead. Calendar 2022 was a challenging
The new year outlook is fairly optimistic considering 2022 was a challenging year for investment returns as rising bond yields
Q1’23 contains the next macro catalysts for the market on Wednesday January 4 when we get manufacturing ISM, US JOLTs
Today’s rebound from short-term oversold levels is a welcome development, but a lack of meaningful catalysts should keep a lid
The rally in 30-year Treasuries decelerated earlier this month as it approached 3.50% with momentum divergence, signaling a tactical mean
Equity market direction is often dominated by a single cross market, but those relationships tend to be fleeting. Terminal rates
SPX support levels are in focus as the S&P 500 (SPX) faded from predetermined resistance near 4100 this week. Intraday
SPX support levels are in focus as the S&P 500 (SPX) faded from predetermined resistance near 4100 this week. Intraday
Today’s updated median dot for ’23 will have implications for terminal rate expectations and equity markets. Terminal rate expectations have
A cooler than expected October CPI report in mid-November caused the unwinding of a crowded macro trade that was short
The S&P 500 (SPX) is priced for dovish data next week, after managing to close above its 200-day moving average
We expect the S&P 500 to lose steam as it approaches resistance ahead in the 4100-4200 zone. This has been
The CBOE Volatility Index (VIX) has returned to ‘normal’ levels near 20, which temporarily removes an equity headwind that’s been
Powell’s overall tone is more dovish than expected. Consensus was looking for his comments to be at least as hawkish
Given the sharp recent uptick in interest rates, it’s reasonable to expect some form of US recession next year. Over
Given the sharp recent uptick in interest rates, it’s reasonable to expect some form of US recession next year. Over
The mid-October conditions that had us looking for a Q4 rally included technical signals (deep oversold conditions with momentum divergences)
The S&P 500 (SPX) is now consolidating gains from the post-CPI rally that took the index through technical resistance at
Deep oversold internal signals and momentum divergence (daily and weekly) from mid-October had Q4 expectations focused on a potential rally.
If you exclude shelter from last week’s core CPI print, you get a negative MoM core number, which implies deflation.
The S&P 500 has the potential to move higher than we initially expected given the post-CPI adjustment in terminal rate
The bearish narrative includes 1) increased inflation expectations; 2) higher energy costs; 3) higher bond yields; 4) higher terminal rates;
Implied rate cuts are something to watch alongside changes to Fed terminal rate expectations.
Yesterday’s +5.6% gain in the SPX followed a 27bp decline in terminal rate expectations and sharp increase in expected Fed
SPX rally follows a cooler than expected CPI print. Consumer Discretionary, REITS and Tech are outperforming, while defensive groups like
Markets understand the major lags in many CPI components, so a hotter-than-expected print tomorrow may have less impact on equities
Realized inflation data matters most for markets and near-term Fed policy with Thursday’s release of October CPI in view.
CPI/SPX Outlook is generally favorable following aggressive Fed comments last week. The post-FOMC speakers tour picks up this week with
Near-term SPX is heavily dependent on terminal Fed Rate expectations, which rose into and out of Wednesday’s Fed meeting.
Catalysts ahead, including tomorrow’s Jobs Report, will likely impact terminal rate expectations, bond yields and equity markets.
It is fairly quiet ahead of today’s Fed Meeting (11am PT) and press conference (11:30am). The most likely outcome is
Catalysts ahead include Tomorrow’s Fed meeting, Friday’s Jobs Report and next Thursday’s CPI print.
Fed scenarios going into Wednesday’s Fed meeting lean equity friendly. Rate hike expectations range from 50bp to 100bp with 75bp
Cross markets provide support for equities, which are higher and near best levels with the S&P 500 on track for
Crude prices in focus as US equities are narrowly mixed, with Energy, Industrials and Financials upside standouts.
US equities are mostly lower with Health Care, Energy and Materials outperforming, while Communication Services (GOOGL) and Tech (MSFT) retreat.
Terminal Fed rate expectations (implied in the OIS forward curve) have been the dominant driver for equities since April/May.
According to the latest Zillow update, home sales in September fell -18% MoM with a sharp deceleration in activity at
The S&P 500 (SPX) has rallied ~4% off the lows through yesterday’s close, but the buyers are likely higher. There
The near-term technical resistance hurdle for the S&P 500 remains 3690 with the index currently above that level intraday.
We discuss SPX outlook as equities rebound following improved UK sentiment.
The sharp reversal in equity markets follows details that reveal the elevated CPI print came largely from stickier components like
Consensus is looking for headline CPI to come in at +8.1%. Anything north of +8.1% will likely weigh on the
Terminal rate expectations remain the key to market sentiment as markets react to the latest NY Fed Survey of Consumer
Higher Eurozone yields combined with a closed US Treasury market weigh on equity sentiment ahead of resumed trading tomorrow and
Today’s Jobs Report came in mostly inline, reaffirming outlook. Non-farm payrolls were up +263,000 in September vs. consensus for +250,000.
Catalysts ahead include tomorrow’s Jobs Report and next Thursday’s CPI print. Markets are in a ‘bad news is good’ phase
Recovery signal appears in markets, despite a mixed session for U.S. equities after the S&P 500 gained +5.8% over the
Democrats currently hold a nine seat majority over Republicans in the House of Representatives and a 50/50 majority in the
Several catalysts ahead, though quiet in terms of earnings until CQ3 earnings season kicks off next Friday.
Terminal rate expectations are down -12.1bp this morning to 4.41% and are still the dominant cross market for equities. Terminal
Near term outlook driven by a calmer tone following reports that UK PM Truss and Chancellor Kwarteng are holding an
Higher global bond yields put renewed pressure on equities after the new UK PM and Chancellor unveiled energy price caps/stimulus
Terminal rate expectations are in focus as lower bond yields follow the BOE’s announced bond purchase program that erases about
The S&P 500 (SPX) is in deeply oversold territory and susceptible to another reflex rally in the 10-15% range. Internal
The S&P 500 (SPX) has lost ~5.3% since the September Fed policy statement and press conference where Powell mentioned ‘pain’
Rising interest rates mater as taming inflation continues to be the Fed’s main objective.
The S&P 500 (SPX) has returned to deeply oversold levels and now testing June lows at ~3660 with long-term valuation
Equities closed lower after a more hawkish dot plot (median ’23 dot of 4.625% pushed terminal rate expectations higher) and
Consensus is looking for a 75bp hike and hawkish press conference where Powell stays focused on remaining inflation risks. In
Over the past week, we’ve received negative Q3 earnings preannouncements from DOW, EMN, HUN, OLN, F, GE, FDX, ARNC, NUE,
The S&P 500 is currently trading below technical support at 3890, which should open the door for a full retest
The first two weeks of September always include a number of sell-side industry conferences where companies provide updates/trends post-CQ2 earnings
Tuesday’s hotter than expected core CPI report has markets full priced for a 75bp hike with odds of a 100bp
After yesterday’s CPI print, bond markets are now priced for a 75bp hike at next week’s meeting with expectations for
The hotter CPI print lifts terminal Fed rate expectations to 4.15% and pressures the S&P 500 back below the 4020-4040
This week’s CPI print is a major catalyst for US markets – one that will set the stage for the
In mid-August, the S&P’s failure to get through its 200-day moving average at ~4330 resulted in the reemergence of broad-based
The oversold equity rally continues with the S&P 500 (SPX) currently trading above pattern resistance in the ~4020-4040 range. A
Short-term oversold conditions and an emerging peak-central bank theme have managed to hold the S&P 500 above technical support at
The S&P 500 (SPX) held technical support at ~3900 yesterday and sits at the lower end of a ~3900-4300 range.
This week includes a number of industry conferences where management teams will provide updates: 1) Bank of America gaming &
The Fed has been clear it wants to see a slowdown in labor markets before it changes its tightening path.
The Fed has been clear that it wants to see some cooling in labor markets. Consensus for tomorrow’s release of
The pace of rate hikes hasn’t really changed with markets still pricing in nearly the same probability for a 75bp
The path of least resistance has been lower since the S&P 500 failed to break through the 200-day moving average
Powell’s central message on Friday was that interest rates may need to stay at elevated levels longer than current market
Today’s downtick in equity markets is being attributed to a more hawkish than expected speech from Powell at Jackson Hole.
Caution ahead of Powell’s address tomorrow was cited for Monday’s weakness in equity markets. Given the recent pullback in inflation
Monday’s sell-off was attributed to fears that Powell will delivering a hawkish speech this Friday. But there doesn’t seem to
A few months ago, we suggested the Saudis response to an Iran nuclear deal (they don’t get along) would likely
OIS forwards are pricing in an even probability (50/50) for a 50bp or 75bp hike at the 9/21 Fed meeting.
Increased short covering gets most of the credit for the ~18% S&P 500 (SPX) rally off the mid-June low as
The fundamental backdrop for equities remains bearish with a 3.50% terminal funds rate and deeply inverted 2/10 yield curve. Bearish
The CBOE Volatility Index (VIX) has now decelerated to neutral levels near 20. Elevated realized volatility usually serves as a
The S&P 500 (SPX) managed to push through key technical resistance near 4180 after the NY Fed’s prices paid/received component
The S&P 500 (SPX) is higher after this morning’s cooler CPI print into technical resistance at ~4200. Old support levels
Tomorrow’s July CPI report is the most important inflation catalyst this week, but it’s not the only one. July PPI
Technical resistance for the S&P 500 (SPX) remains in the 4150-4200 range. The SPX has now rallied +13% off the
It’s hard to reconcile today’s strong jobs report with the recent rise in jobless claims and long list of anecdotal
With inflation and Fed policy in focus, equity markets would prefer that tomorrow’s Jobs Report come in weaker rather than
The past two days of hawkish Fed rhetoric has pushed terminal Fed expectations from ~3.25% to ~3.45%. We’ve been following
The prices paid component in yesterday’s ISM manufacturing survey for July declined by a record -18.5 points MoM to 60.0.
Most of the downside in yields is currently being driven by illiquid conditions during a seasonally slow period for Treasury
The 10-year Treasury yield is down -11bp to 2.674% and ready to test strong technical support at ~2.64%. Expect that level
A 75bp rate hike today would take Fed funds close to the neutral rate of ~2.50%. This puts increased attention
The peak inflation narrative really began back on May 9 when ten-year inflation breakeven rates traded below support at 280bps.
Ten-year bond yields fell ~24bp last week to 2.75%, reflecting increased recession worries. Following lagging indicators like GDP for signs
The S&P 500 (SPX) cleared near-term technical resistance in the 3950-3970 range yesterday with a position squeeze potentially postponed as
Aggregate Q2 management commentary on the state of the US consumer suggests some weakening in lower income consumers, but mostly
The S&P 500 (SPX) is butting up against intervening resistance in the 3950-3970 range with a breakout likely to result
The S&P 500 needs to clear resistance at 4150-4200 to build a bullish technical outlook over the intermediate term. Near-term
The S&P 500 remains in a narrow range between ~3720-3910. A push above 3950 would still be considered part of
Sell-side research analysts should be done with one-year forward estimate cuts by the end of Q2 earnings season (end of
The current higher than ‘neutral’ terminal Fed rate is a challenge for equity markets. The Fed follows longer term inflation
We expect sell-side analysts to complete 2023 earnings revisions by August/September, and by Q4 equities will be fully discounting economic
Better-than-feared early Q2 results amid defensive positioning and extreme bearish sentiment could result in a squeeze higher. We continue to
Ten year inflation breakeven yields have moved sharply lower since crossing below technical support at 280bp.
The biggest overhang for equities has been central bank policy and a shift in tightening expectations will remove the overhang.
US core PCE (Fed’s preferred inflation measure) came in cooler than expected, up +0.3% MoM vs. consensus for +0.5%. This
The forward curve is pricing in a decline in headline inflation and we expect lower goods prices H2’22. Energy prices
Ten-year Treasury yields and risk markets (copper/gold ratio, European equity indices, semiconductors and US Financials) tend to have a positive
The 4200 level is a significant technical challenge and pushing beyond the range will likely require a change in macro
Inflation expectations drive Fed rate expectations, and hawkish Fed expectations are weighing on the S&P 500 (SPX). Ten-year inflation breakeven
Bond markets are now priced for 75bp tomorrow, 75bp for July, 50bp for September, 50bp for November, 25bp for December
Decelerating inflation and slower growth should weigh on value stocks more than quality. Year-to-date, the S&P 500 Value Index is
The S&P 500 should remain above technical support at ~3,850 as long as 10-year inflation breakeven yields remain below 283bp.
Our primary focus for equity markets are 10-year inflation breakeven yields, which currently sit at 277bp.
The trigger for an SPX reversal in March 2020 was narrowing credit spreads. We accurately identified the trigger in early
Inflation breakeven yields tend to lead equities and Fed expectations during periods of elevated inflation.
A new paper from the Fed contrasts the inflation from the ‘70s to the current situation, suggesting policymakers from the
The S&P 500 (SPX) has already absorbed the assumed tightening in monetary policy. Inflation expectations will need to rise in
The relationship between inflation breakeven yields and terminal Fed rate expectations is the most important cross market indicator for equity
Markets are currently pricing in 50bp hikes in June and July and 50/50 probability for 50bps or 25bps in September.
We initiated positions in the Energy sector more than 9 months ago because it was inexpensive and we wanted to
The potential bullish equity theme also requires lower levels of equity market volatility. The CBOE Volatility Index (VIX) has descended
At least part of the plan has come together. The challenge facing markets from late February-early May was a breakdown
Historical collinearities began to reestablish themselves after 10-year inflation breakeven yields traded below technical support at 280bps (5/9). We discussed
The consumer came into this year with strong household balance sheets and elevated savings rates. Recessions generally require stretched credit
A sustained rally in equities requires lower inflation breakeven yields followed by lower nominal bond yields and lower Fed expectations.
The potential catalyst for a Fed pivot in today’s world would likely start in declining inflation expectations. This puts the
The S&P 500 (SPX) is testing last Thursday’s intraday reversal level in the 3,850-3,900 range with the 38.2% Fibonacci retracement
The Fed’s increased clarity on near-term policy should help reduce bond market volatility, which usually leads to a narrowing of
Copper and steel prices typically lead the way on inflation and they’re already negative YoY. We should begin to see
Coincidentally, we think that changed last Monday when 10-year breakeven yields moved sharply below support at ~280bps.
We were surprised to see the S&P 500 (SPX) break technical range support near 4,100 amid record bearish equity sentiment
Inflation expectations continue to decline with 10-year breakeven yields down to our predetermined support range of 262-265bps.
The S&P 500 will likely stay range bound until there’s a more obvious deceleration in inflation.
Prior to 2/24, the relationship between commodity prices, Fed expectations and bond yields functioned normally and the S&P 500 (SPX)
Prices are very oversold, positioning is light and equity sentiment sits at bearish extremes. Valuations are now at reasonable levels
The US economy added +428,000 jobs in April, which was higher than consensus expectation for 380,000. Non-farm payrolls are now
Today’s downtick in risk assets mostly reflects an uncertainty discount into tomorrow’s April Jobs Report and next Wednesday’s CPI print.
The market will be focused on: 1) Fed comments around more 50bp rate hikes at upcoming meetings; 2) whether Powell
The cause of all this pessimism is inflation, exacerbated by Russia’s invasion. Prior to the invasion, markets had been responding
The bearish narrative includes: 1) an aggressive Fed-led global tightening cycle; 2) persistently high inflation data exacerbated by spiking commodity
The near-term risk/reward for the SPX remains higher given extreme bearish equity sentiment, light positioning and oversold conditions.
Technical support for the S&P 500 (SPX) remains in the ~4150 range after holding that level twice during the early-
We continue to view Energy as a secular opportunity that will play over several years.
The US economy seems to be in unchartered waters, with certain elements (tight labor markets/unusual inflation pressures) associated with late
Opinions are mostly formed by past experience, with elevated inflation on sharply high oil prices causing some investors to dust
We keep our value sector bias when adding equity exposure with Energy outperformance in early innings. OPEC+ has been under-producing
Our call for a better-than-feared March CPI was based on extreme expectations and leading indicators pointing to an imminent near-term
Given already high expectations, we don’t expect tomorrow’s US CPI release to become a major inflection event for markets. Consensus
Our preference to add exposure in value sectors began last July. Since then, the S&P 500 Value Index (SVX) has
The challenge for any central bank is that inflation and employment adjust with a ~12 month lag. A lot of
The past few weeks of NDX outperformance looked like lazy, low conviction buying as a 70’s-style stagflation narrative emerged while
Past early stages of Fed tightening have not been negative for equities, which tend to make new highs after initial
The NASDAQ 100 (NDX) is up +1.70% this morning, outperforming the S&P 500 (SPX) by ~120bps based on: 1) recession
The stagflation narrative gets a small boost from today’s lower than expected March Unemployment Rate ( 3.6% vs. 3.7%) as
We’ve pushed back on the recession signal quality of Tuesday’s curve inversion, citing the steep upward sloping real yield curve
We’re in the camp that questions the recession signaling quality from yesterday’s 2/10 nominal yield curve inversion.
The nominal 2/10 yield curve is very close to inverting, which should drive more reports of recession signaling and warnings
The 5/30 year yield curve inversion has started a Fed policy mistake/recession signaling narrative, particularly since the last 5/30 curve
The March 16 Fed rate hike acted as a clearing event to gradually unwind the uncertainty discount preceding liftoff. The
Notwithstanding unscheduled Russia/Ukraine developments, the calendar looks fairly quiet until CQ1 earnings season kicks off on 4/13. A lack of
Light positioning and extreme bearish sentiment keeps near-term equity market risk skewed to the upside. The usual internal signals that
The financial press will likely be focused on curve flattening in the months ahead, and it’s signaling for an eventual
Investor positioning has now moved back to March ’20 lows. Broad market short interest is the highest it has been
The 11am Fed policy statement was a bit more hawkish than expected, promising ‘ongoing increases in the target rate,’ while
Brent price forecasts in the $150-$200 are worst-case scenarios based on little/no Russian supply finding its way to markets. Oil
Ten-year Treasury yields now at ~2.12% are threatening to break through range resistance at 2.06%. The close matters most, but
The S&P 500 continues to trade in the 4,100-4,300 support range as realized volatility slowly descends from recent highs. Geopolitical
We see the SPX tracing out a bottom in the 4,100-4,300 as realized volatility cools. The CBOE Volatility Index (VIX)
Tomorrow’s US CPI report has been partially de-risked by Powell’s comments in support of a 25bps March rate hike, rather
This morning’s intraday equity reversal follows a specific headline, but exacerbated by an oversold technical dynamic in our ~4,100-4,300 support
Major European benchmarks closed well off worst levels today. Reports will focus on the Euro Stoxx 50 (SX5E) falling into
The S&P 500 will struggle on rally attempts as long as equity market volatility remains elevated (VIX Index above 20).
The S&P 500 (SPX) has recovered +7% from the intraday low on 2/24 as momentum divergences triggered short covering and
The sanctions enacted against Russia have already taken a massive toll on the country. Russian companies are unable to access
Higher commodity prices are driving inflation breakeven yields higher, while risk-off positioning pressures nominal yields lower. The combination has taken
Recent events in Ukraine are more dramatic than what we initially assumed. The impact to financial markets comes through higher
It’s very common for equities to rebound after a sharp/sudden correction. Since 1990, the average rebound from a ~10% correction
The Euro Stoxx 50 (SX5E) and Hong Kong’s Hang Seng (HSI) index are positively correlated with US value sector performance.
The consensus narrative expects sustained growth would only encourage the Fed to hike more until the inevitable policy mistakes create
Markets are fairly quiet today and likely to remain that way until Thursday morning’s CPI report. Higher energy prices throughout
We recently shifted our yield curve focus from the 5/30-year spread to the 2/10 spread to account for rising concerns
Today’s data will lead to increased weekend reports of rising inflation expectations. But since January 3, inflation expectations as measured
Yesterday’s disappointing FB guidance arrived as the S&P 500 closed just beneath technical resistance near 4,600 and the CBOE Volatility
Covid-related economic disruptions should fade as we move deeper into the year, which may result in a fundamentally different macro
We continue to view the recent correction as bullish consolidation within an ongoing longer-term rally. However, the S&P 500 (SPX)
The rally from oversold has the S&P 500 (SPX) set up for a period of base building under the 4500-4600
The focus was on MSFT/AAPL earnings and the Fed coming into the week. The two large Tech names reported solid
The ~11% correction in the SPX mostly matches the scale of recent past episodes when monetary accommodation was initially removed.
The stability seen over the past two sessions comes after the S&P 500 (SPX) reached oversold conditions after an ~11%
Markets will be focused on four items from tomorrow’s Fed meeting: a signal on liftoff beginning in March, guidance on
The near-term path of least resistance is still aimed lower, but important to watch for a developing bullish narrative with
The main driver of the sell-off has been sharply higher bond yields at the start of the year. The yield
Yesterday’s afternoon fade in the S&P 500 (SPX) looked like CTA selling and it’s important to see if the SPX
The most likely scenario from here still looks like a resumption in the cyclical recovery based on an end to
Bond yields will drive the near-term narrative as the 10-year approaches its 2020 high of 1.877%. We keep a Q1
This Friday kicks off CQ4 earnings season with a handful of large US banks reporting pre-open. Our preference to own
Yesterday’s reversal and today’s follow through in Tech has been chalked up to deeply oversold conditions, but conditions were not/are
Growth sectors underperformed value sectors by 585bps last week as bond yields rose and the curve steepened.
Wednesday’s release of Fed minutes is still the main driver of recently higher nominal/real yields and value sector (Financials/Energy/Materials) outperformance.
Ten year yields are currently trading at 1.72% with mild resistance in the 1.90%-1.94% range, but the real number is
Valuation is a dull instrument for timing the entry and exit of investments. Valuation requires a catalyst to make it
Over the past ~2 weeks, markets have been sending a signal that Omicron is the beginning of the end of
Low volatility, secular growth stocks outperformed into year-end reaching a record high premium to high beta stocks.
The driver behind this week’s rally is a growing belief the Omicron wave will be widespread but relatively brief with
Light attendance and thin liquidity into a catalyst vacuum typically leads to trend continuation.
The SPX tested near-term support at ~4545 yesterday. A firmer core PCE number could bring a test of stronger, secondary
Support for 10-year Treasury yields sits in the 1.35%-1.40% zone with sustained levels north of 1.55% confirming a reversal to
Crowded positioning in Tech reflects a bias to own secular growth stocks following 12+ years of disinflation that resulted in
Today’s FOMC had been the primary focus for markets this week, but attention will quickly turn to tomorrow’s ECB meeting.
The S&P 500 failed to break pattern resistance yesterday with intraday levels suggesting a pullback to immediate support into last
Look for the Fed to double its tapering pace to $30B/month on Wednesday with the updated dot plot showing 3
Today’s in-line CPI report and Wednesday’s JOLTS report that implied tighter labor market conditions won’t change the near-term narrative on
Tomorrow’s CPI report will undoubtedly have an impact on markets. From a longer-term perspective, inflation rates impact equities/equity valuations through
The fundamental landscape remains solid with bond yields, commodity prices, PMI data and earnings revisions keeping the balance of risks
The global cyclical recovery and reflation theme will likely be the dominant market narrative if the Omicron variant turns out
The CBOE Volatility Index (VIX) closed above it’s 50, 100 and 200-day moving averages every day last week. Increased volatility
Government entities, Pharma and Health Care providers all cite a 2-week timeline to analyze the new variant. Friday’s outsized move
The same positioning indicators have Energy as the most crowded sector short, with long positioning down ~90% over the last
The sector with the least crowded positioning at the moment also happens to be a good inflation hedge. Underinvestment in
Higher real yields (nominal yields – inflation expectations) follow recent attention on easing supply bottleneck pressures on rising Asia vaccination
The NASDAQ 100 (NDX) has led all other major indices this week as 10-year real yields have remained anchored (now
The S&P 500 (SPX) should be upwardly biased into year-end as hedge fund managers avoid negative P&L on shorts.
The Hang Seng Index (HSI) has spent the last two months building a base and now reversing from short-term oversold
We expect nominal bond yields to continue moving higher from here as long-end yields currently imply near zero GDP growth
Key support of the 5/30 yield curve sits in the 75-79bps range. We expect the 5/30 curve to hold above
Key support of the 5/30 yield curve sits in the 75-79bps range. We expect the 5/30 curve to hold above
Expect the S&P 500 (SPX) rally to decelerate in the days ahead as the index faces internal technical resistance at
Headlines out of Washington over the past ~12 hours suggest the risk of tax hikes can nearly be eliminated from
Yesterday, the S&P 500 closed beyond pre-identified resistance in the 4460-4590 range with broad sector participation. The price action adds
Two weeks ago, the S&P 500 (SPX) reversed from short-term oversold levels and above predefined support in the 4230-4250 range.
Inflation-related data early last week pointed to further pricing pressures with: 1) big increase in inflation expectations within the New
Covid-related drags should continue to fade in the weeks ahead, which will likely drive yields gently higher with curve steepening.
The Covid situation should continue to improve and extend the cyclical recovery. Btw, Friday’s interim study results on MRK’s oral
Once the debt ceiling issue is resolved, we’d expect nominal bond yields to resume their recent back up with gentle
Today’s strong relief rally in Tech and Communication Services is a welcome development given their respective sector weightings within the
September global manufacturing PMI ticked up last week after 4 months of lower numbers. May was the peak in global
The S&P 500 (SPX) continues to work through a seasonably bearish month. Visible risks, including a China slowdown, Washington issues and
The S&P 500 has been holding up relatively well in the only historically bearish month of the year after price
Cyclical/value sector leadership still depends on bond yields moving higher. US Treasury yields hammered out cycle lows in late-July/early-August with
The August Jobs Report capped off a series of mostly disappointing data including decent-sized downticks in August consumer confidence readings
The summer slump in growth data was largely attributed to delta variant concerns, but the outbreak has recently shown signs
August US PMI and ISM data confirmed the expanding business cycle, which helped small cap stocks (RTY Index) outperform during
Today’s payroll miss fits with the trend from the past 2-3 weeks. US and global economic data has clearly pointed
The significance of tomorrow’s payroll number hasn’t diminished, but expectations are lower than they were two weeks ago, which skews
The ADP private payroll survey isn’t always an accurate predictor of monthly non-farm payrolls, but today’s miss clearly lowers the
Light attendance and a relatively light catalyst calendar over the past two weeks have mostly led to trend continuation, but
Attendance and participation are expected to stay light this week heading into the long holiday weekend. This happens every year
The S&P 500 Value Index (SVX) began a 3-month period of consolidation in early-May when bond yields started to decline.
After ~3 months of consolidation, the S&P 500 Value Index (SVX) is set up for a technical breakout. The S&P
Ten-year Treasury yields closed just above technical resistance levels in the 1.28%-1.32% range yesterday. A more significant breakthrough is required
As previewed, Financials (banks) outperformed on Friday and thus far today after the upside in July payrolls drove bond yields
Yesterday, we suggested a non-farm payroll print north of +900,000 would likely take the 10-year Treasury to 1.28%-1.30%, lead to
Consensus expectations for tomorrow’s release of non-farm payrolls is now +862,500. Consensus for the Unemployment Rate is 5.7% (down from
Today’s ADP private payroll numbers was softer than expected at +330,000. The report has a relatively weak positive correlation to
Friday’s release of the July Jobs report is the next near-term macro catalyst. Consensus for Non-farm payrolls is currently +825,000,
ISM deceleration to 59.5 from 60.6 last month is relatively meaningless and partially reflects ongoing bottleneck pressures. The goods sector
The S&P 500 Value Index (SVX) has been relatively resilient over the past ~2 months, despite lower bond yields and
Real yields are higher this morning after Powell’s press conference takeaways pull taper announcement expectations slightly forward, while holding rate
Positioning in Tech is overcrowded, particularly after SNAP’s blowout results last week drove incremental interest in mega-cap names given broad
Global growth concerns emerged about a month ago when UK delta variant case counts started to rise. But UK case
This is the busiest week on the summer catalyst calendar with peak Q2 earnings volume and no shortage of macro
Substantial declines in the Unemployment Rate are probably required before 10-year yields can inflect meaningfully higher…through resistance at ~1.45%.
A bearish narrative around peak growth started in May after April manufacturing ISM decelerated to 60.7 from 64.7 in March.
The Nasdaq 100 (NDX) pushed to record highs on lower bond yields. The index pulled back with the SPX on
The S&P 500 held technical support in the 4200-4250 range yesterday, supporting our inclination to add cyclical/value exposure on the
The S&P 500 (SPX) trades to predetermined initial support in the 4200-4250 range after price trend deceleration early last week
The S&P 500 (SPX) closed last week at a record high after seven consecutive days of gains added +2.6%.
Longer-dated bonds (10+ years) have declined since the spike in US April CPI data on concerns for a Fed policy
Bond yields move lower and the yield curves flattens late in an economic cycle. But late cycle dynamics also include
The recent advance in the Nasdaq 100 (NDX) to ~14,550 has exceeded pattern objectives of ~14,400, driven largely by a
Consensus for Friday’s release of June Non-farm payrolls ticks higher to +700,000 from +685,000 yesterday.
Global economic growth in the first half of the year will probably come in up +4.6%, which is a full
Headline and core May PCE (Fed’s favorite inflation gauge) fell short of expectations on a month-over-month basis, up +0.4% and
Optimism for a bipartisan/White House infrastructure package could be premature, but the headlines return markets to the ‘inflation/Fed policy mistake’
Last Wednesday’s Summary of Economic Projections from the FOMC included only small upside revisions to inflation forecasts, while the median
Yesterday’s backup in bond yields resulted in value (SVX) outperforming growth (SGX) by 99bps. Conditions for a systematic reversal in
Last week’s apparent hawkish Fed pivot had bond prices reaching further into extreme overbought territory, but yields still held support,
The Fed’s updated dot plot on Wednesday just moved closer to what markets have been signaling in OIS (overnight swaps)
Bond yields reflect market expectations of future rates of inflation or growth. Higher future bond yields tend to lead cyclical
This week’s weaker guidance from JPM and C may set the stage for an oversold reversal as Fed stress test
Ten-year yields are trying to break through their 100-day moving average at 1.50%. The month-long rally in Treasuries (yields lower)
The next major event on the catalyst calendar is Wednesday’s FOMC meeting. Markets are almost entirely focused on a possible
As previewed, Treasury yields move lower despite this morning’s hotter-than-expected May CPI report.
Consensus is looking for headline CPI to be up +0.4% month-over-month and +4.7% year-over-year. Core CPI is expected to be
May CPI is scheduled for release this Thursday. Year-over-year US CPI accelerated to +4.2% in April from +2.6% in March
Friday’s below consensus Nonfarm payroll print should be an incremental tailwind for the SPX as it helps keep the Fed
The reflex market reaction to the mild payroll disappointment has Treasury yields lower with growth equity sectors outperforming value. But
Today’s ADP jobs report for May was very strong with private payrolls up +978,000 vs. consensus for +623,000. The correlation
Friday’s release of May Nonfarm payrolls will be the last major employment report into the June 15-16 FOMC meeting. The
Potential headwinds include: 1) the Fed’s tapering conversation could become an equity headwind if expectations shift forward (consensus looking for
Yesterday, we covered expectations for large cap banks to increase buybacks after June stress test results (late June). The increases
The new focus on Fed tapering has mixed implications for markets. The near-term implications are net positive as the conversation
The S&P 500 has been rangebound since early-April with leadership shifting between growth and value sectors. The recent, mild softening
Last week’s pickup in Eurozone flash PMI data has the region looking like a complimentary growth engine to the US
Momentum is a popular input for the vast majority of systematic factor models. As the economy continues to recover, the
PMI is a forward-looking diffusion index with levels above 50 implying expansion and levels below implying economic contraction. The distance
At the moment, we see none of the internal and/or cross-market signals that usually precede meaningful equity correction. Last Wednesday,
The next catalyst for bond yields will be the release of US and Eurozone flash May PMIs this Friday. The
Stay focused on value sectors (Financials, Materials and Energy), small-cap indices like the Russell 2000 (RTY) and value stocks within
Some of today’s big upside CPI print can be attributed to base effects, meaning the magnitude will likely prove transitory,
We’re seeing supply constraints because demand is so strong with the next major data point due this Friday with the
Bond yields are lower this morning, but the value trade continues to outperform as attention stays on improving PMI data.
Over 50% of S&P companies have now reported Q1 results with improved metrics driving the 2022 consensus SPX EPS estimate
Powell pushed back on expectations for QE tapering during the press conference, saying it’s not yet appropriate to “think about
Our preference to add cyclical/value equity exposure over growth exposure started in mid-September when real yields made a long-term secular
The recent consolidation in bond yields is a mean reversion trade after prices became deeply oversold in mid-March. The consolidation
The recent consolidation in bond yields has been mostly driven by technical flows from private pension plans and some systematic
The impact of Biden’s proposed infrastructure spending plan is also net-negative for equities.
The recovery in growth stocks over the past three weeks followed lower bond yields based on technical flows (CTA positioning),
The S&P 500 (SPX) appears to be in consolidation mode after four straight weeks of gains totaling nearly 8%. The
The fundamental justification behind the recent pullback in bond yields must be rooted in concerns around the sustainability of the
Ten-year Treasury yields declined by 11bps at one point yesterday (closed 6bps lower), despite much stronger-than-expected US data. Short-covering is
Ten-year Treasury yields are extending below first technical support in the 1.62%-1.64% range. Closing levels are far more important, but
Ultimately, we expect higher bond yields, more curve steepening and a return of cyclical/value equity leadership during Q2. Look for
The profit outlook going into CQ1 earnings season is highly supportive for the broad equity market. There’s been some concern
Equities should have further upside for the next several months/quarters as we enter the early stages of a cyclical recovery.
The total pullback in the S&P 500 (SPX) that followed mid-March price trend deceleration matched our expectation for the index
Tomorrow’s release of FOMC minutes from the March 17 meeting will be closely examined for any hints on the timing
Ten year bond yields continue to consolidate below ~1.74%. Bond prices are finally responding to deeply oversold conditions and expect
Ten-year Treasury yields are currently trading at 1.68%, matching our expectation for a period of consolidation below the 3/19 intraday
Ten-year Treasury yields remain just under the highs from 3/19. Releasing through 1.74% would likely pressure growth equity multiples further
Thursday’s release of final March manufacturing PMIs and US manufacturing ISM will influence bond yields. US and global economic activity
The rapid acceleration we’ve been expecting in global growth has started. US credit card spending data accelerated 1800bps last week
Our focus has been on adding cyclical/value equity exposure since real yields bottomed in mid-September. Since 9/15/20, the S&P 500
The S&P 500 is consolidating after another period of decelerating price trend momentum. We saw similar activity mid-last month with
Reopening beneficiaries have been under pressure over the past two sessions, ostensibly based on rising case counts in pockets of
The bond market has been under consistent bearish pressure over the past 5 weeks despite deeply oversold conditions. During that
We’ve already seen a very large rebound in goods prices with booming factory output and the case for inflation now
This week’s ECB meeting provided a one-day pause in the backup on promises of accelerating bond buying. With 24 hours
The NASDAQ 100 is rebounding as 10-year yields consolidate below technical resistance in the 1.61-1.70% range. A sustained NDX close
Decelerating price trend momentum in the S&P 500 (SPX) from mid-February resulted in a pull back to technical support in
Today’s reversal in bond yields follows our technical script with 10-year yields fading near secondary resistance in the 1.65-1.70% range.
By late summer, equity positioning in value sectors (Materials, Financials and Energy) had declined ~40% year-over-year. The Q4 cyclical/value rally retraced
Bond yields always rise as you exit a recession. But the very recent increase in yields appears to be driven
Presently trading at ~1.53%, ten-year Treasury yields are testing the highs from last Thursday. Another breakout in bond yields would
The preference for cyclical/value sectors is beginning to look more like a potentially painful rotation out of growth. High multiple
Yesterday’s rally in US equities was attributed to a stabilization in bond yields largely due to rhetorical intervention from the
Markets are definitely more calm following Friday’s reversal in bond yields. Obviously, a more gradual yield backup is preferred from
The recent pullback in the S&P 500 looks very similar to the one from late January, which ended up being
The 5-year/30-year yield spread is currently priced to 161.3bps and approaching resistance at ~162bps. We remain intermediate-term bullish on the
Last week’s report on January retail sales came in +5.3% (+6% for the control group) vs. consensus for +1%. This
At 1.33%, 10-year Treasury yields are currently testing secondary technical resistance in the 1.30-1.35% range. We’re not expecting a breakthrough
While the conditions that caused the 2003/2013 yield spikes don’t seem to exist at the moment, it’s also important to
Sharply higher bond yields has been the identifiable risk for equities since the 11/9 PFE/BNTX vaccine data. Over the last
Our preference to add cyclical/value equity exposure (Industrials, Materials and Financials) was initially based on real yields bottoming back in
Yesterday, the 5-year/30-year yield spread cleared technical resistance at ~143bps on rising expectations for Democrats to use the budget reconciliation
Better-than-expected US economic data plus an improved vaccination pace argue against additional large-scale fiscal relief at this time but it
Rising expectations for large-scale fiscal stimulus and US vaccination progress are resulting in higher yields and curve steepening. Democrats sound
Q4 earnings season is trending better than expected with ~85% of S&P 500 companies beating consensus earnings vs. an average
Overnight vaccine headlines may not read universally positive, but bond yields are higher and the curve is steeper post-release. Ten-year
The coordinated short-squeeze in GME and others from Reddit’s blog posts forced a mechanical de-leveraging yesterday, which led to the
In the short-run, markets are influenced by fundamentals, sentiment and positioning. In the long-run, markets are only interested in fundamentals
The move lower in 10-year Treasury yields has created an opportunity to add cyclical/value equity exposure. Bond yields have significant
The near-term dynamic in bond yields is creating a pullback in cyclical and value sectors. We see the pullback as
JNJ efficacy data in the 80% range would further weigh on fiscal stimulus expectations that already appear challenged. Markets had
Increased fiscal stimulus expectations and vaccine optimism have been presented together in the recent bullish narrative, but these two themes
Very early Q4 earnings metrics are coming in much stronger than expected. Overnight results from NFLX, UNH, MS, JBHT and
Bond prices are in a developing bear market and yields are heading higher. Globalization and technological changes have been weighing
Biden’s ~$1.9T fiscal stimulus plan was already priced into markets and today’s sell-the-news reaction fits our preview from Wednesday. Fiscal
Some of the recent back-up in bond yields reflects high expectations for increased fiscal stimulus/spending. The unveiling of Biden’s economic
Ten year Treasury yields are presently testing secondary technical resistance at ~1.16%. Treasury prices are now short-term oversold and odds
Higher bond yields shouldn’t become a problem for value sectors in the near-term. Ten-year Treasury yields above ~1.16% would likely
The US Jobs Report for December disappoints with nonfarm payrolls down -140,000 vs consensus for +50,000 and November’s +245,000.
We turned incrementally positive on cyclically sensitive ‘value’ sectors in mid-September. Our level of conviction level increased on October 21
Upward pressure on bond yields has been in our forecast since mid-September and a key piece in our preference to
At some point higher bond yields become a problem for equity multiples. In a world without QE, bond yields reflect
A Democrat surprise in GA this week would likely trigger a further decline in the US dollar, an increase in
Three years ago, we had a dream of building a best in class investment management and wealth advisory firm.
The positive PFE/BNTX data on 11/9 brought higher bond yields and curve steepening. The rise-over-run between the 5-year Treasury yield
The perception around fiscal spending has already begun to shift away from ‘more is better.’ We discussed this back in
We’ve held a bullish equity outlook since credit spreads narrowed in late March. Our bullish outlook was based on a
We’ve had a pro-cyclical/value bias since mid-September. At the time, financial conditions remained extremely favorable, Tech multiples had stopped expanding
Most equity indices have seen decelerating price trend momentum over the past two weeks despite improved stimulus and vaccine headlines.
Yesterday’s advance in the SPX puts the index in range of new highs this week. But a loss of momentum
The S&P 500 (SPX) is short-term overbought with extreme/elevated bullish sentiment as primary near-term concerns. At the moment, there’s no
We have a cautious near-term outlook based on extreme bullish equity sentiment (contrarian indicator) and short-term overbought conditions. Bullish sentiment
Visible concerns around stretched valuations in Tech first appeared in early September when impressive earnings failed to generate price appreciation.
Equity sentiment reached bullish extremes three weeks ago and the SPX is now short-term overbought. In our experience, periods of
The 5-day moving average of the CBOE Equity Put/Call ratio and weekly AAII sentiment survey are both at bullish extremes.
Three weeks ago, the American Association of Individual Investors (AAII) equity sentiment survey reached bullish extremes with a reading of
Cyclical and value sectors (Industrials, Financials, Materials and Energy) have been leading the S&P 500 to record highs since the
Two weeks ago, equity sentiment reached bullish extremes, with the weekly AAII poll registering its second highest level in history
Last year at this time (11/30/19), we expressed an emerging preference for cyclical/value sectors when global manufacturing PMI crossed into
The market-cap weighted S&P 500 (SPX) is on track to gain +11% for the month of November, while the equal
Next week includes earnings for a number of SMID-cap cloud software/growth companies including ZM (Monday pm), BOX/CRM (Tuesday pm), CRWD/OKTA/SNOW/SPLK
The 2007 financial crises started the current period of disinflation, which has led to a 13-year cycle (so far) of
The market remains focused on vaccine headlines for a third consecutive week. And reports discussing the potential for inoculations to
The S&P 500 (SPX) has spent this week consolidating post-election and vaccine-related gains from the prior two weeks. Investors were
Having cleared technical resistance at ~3581, the S&P 500 should have an easier time pushing higher. Our intermediate concern is
The preference for value sectors continues with the S&P 500 Value Index (SVX) up +10.47% since October 1 vs. the
The November BofA Global Fund Manager Survey noted cash levels fell to 4.1% from 4.4% last month. This level is
The market response to the MRNA data will be less violent than last Monday given elevated expectations, but value sectors
Yesterday’s ‘afternoon fade’ had the S&P 500 closing below technical resistance at ~3581. A sustained close above ~3581 opens the
The 90% efficacy number from the PFE/BNTX candidate is surprisingly high. Of the first 94 people to get infected, more
Trading patterns and option term premia suggest the big volatility buyer in Tech is back. You can also see this
Equities are higher again today as markets bake-in a Biden and McConnell outcome. Trump still has a path to 270
Markets generally prefer a balance of power in Washington. Expectations for Republicans to retain a narrow Senate majority largely de-risks
Better-than-expected Q3 reports from Tech companies mostly see a sell-the-news reaction as investors slowly shift away from growth/momentum toward cyclical/value
Any election scenario that doesn’t involve a weeks-long contested outcome should result in an initial equity market rally. Rotation into
Equities will likely remain under pressure until the election is completed. Markets apply an uncertainty discount to upcoming events and
Many sell-side strategists have recently warmed up to the Democrat sweep scenario based on expectations for massive fiscal spending. But
Yesterday, the S&P 500 broke our near-term support level at ~3400 and currently testing secondary support at ~3295. A number
The contested election scenario has reemerged as the primary risk, given we’re one week out with no fiscal stimulus and
This week is the busiest week of Q3 earnings season with ~33% of the Russell 1000 reporting. Just over 25%
From an equity perspective, a contested election looks like the worst-case, short-term scenario coming out of 11/3. Fortunately, it’s a
For this publication, a ‘Democrat sweep’ is defined as a Biden victory and Democrat-controlled Senate. A blue wave scenario is
Control of the Senate is the largest near-term macro issue for markets. Expectations for large-scale fiscal spending under a Democrat
Equity markets continue to price significant risk of a contested election outcome. The best indication comes from the VIX futures
The S&P 500 (SPX) remains above its previous technical resistance zone/now support at ~3420-3450. A break below ~3420 would change
We’ve stayed bullish on US equities during the retracement and beyond based on a number of factors still in place
At the moment, the S&P 500 (SPX) is on track for a third consecutive lower daily close on gloomy COVID
Sell-side analysts tend to lower estimates during a quarter, but Q3’20 was one of the rare instances when the opposite
: Biden’s rising poll numbers have reduced concerns over the potential for contested election results. Investors are still positioned for
Previews of Q3 earnings season focus on elevated expectations based on increased estimates during the quarter. Tomorrow morning kicks off
The consensus 2021 S&P 500 EPS estimate has quietly climbed from ~$165 to ~$168 over the last three weeks. Without
Anticipation of sharply higher government spending under a Biden + Democrat sweep has led to a relatively significant increase in
Yesterday’s House antitrust announcement aimed at GOOGL, AMZN, FB and AAPL (consumer focused) has been in the works for more
: We continue to expect a successful test of the 9/2 record high before year end with cyclical/value leadership under
The pullback in the S&P 500 (SPX) and NASDAQ 100 (NDX) started on 9/3 after CIEN issued unusually bad guidance.
: September headline net job additions missed, coming in at +661,000 vs consensus for +850,000 but other components of the
The CQ2 earnings season was far better than expected and it’s difficult not to be upbeat about the performance of
The US ADP jobs report for September was solid at +749,000 vs consensus for 649,000 and up from 481,000 in
: Global manufacturing PMI crossed into expansion territory in July at 50.6 and extended to 51.8 in August. China doesn’t
Last week, many economists finally removed near-term fiscal stimulus from their Q4 GDP growth estimates. The estimated $1T-$1.5T fiscal package
Election uncertainty and a failure by Congress (thus far) to agree on a fiscal relief package have combined to pressure
Election uncertainty and a failure by Congress (thus far) to agree on a fiscal relief package have combined to pressure
: Interim data from the Phase 3 PFE/BNTX study are expected late next month with Phase 3 MRNA results shortly
Over the last 7 sessions, the S&P 500 and nearly all of its Tech sector constituents have moved from overbought
Some of the high frequency US economic data (credit card spending, mobility etc) began to decelerate toward the end of
Value sectors have outperformed growth sectors so far in September. The S&P 500 Value Index (SVX) has outperformed the S&P
Expectations for pre-election fiscal relief may have ticked higher following Tuesday’s $1.5T proposal from bipartisan moderates. Meadows continues to sound
1) Today’s Fed meeting is mostly expected to be a non-event; 2) low expectations for a fifth fiscal relief bill
The SPX is building a short-term technical base below the 9/2 all-time closing high of 3580. Many SPX constituents have
The fundamental outlook continues to improve on a stronger than expected economic recovery, earnings recovery (evident in recently constructive forward
: At current levels, the S&P 500 (SPX) sits just above strong technical support in the 3220-3310 range. The Nasdaq
As discussed yesterday, markets don’t usually make a top on accelerating price momentum and elevated bearish sentiment. And last Wednesday’s
We continue to view the recent pullback in the SPX as a pause rather than the beginning of an immediate,
The S&P 500 is currently down ~6.2% from last Wednesday’s record close and trading below initial technical support at ~3410.
Thus far, the current sell-off in software stocks looks like episodes from the past two years (2018 and 2019), which
Given current market conditions, investors are rightly reconsidering the strategic role of cash. As we’ve written before, investors are prone
Today’s sell-off in Tech looks like the begging of a ‘healthy short-term correction’ amid crowded positioning and record-high multiples. The
The market will face a couple of potential downside catalysts over the next ~2 months. The first catalyst is the
The market will face a couple of potential downside catalysts over the next ~2 months. The first catalyst is the
The market will face a couple of potential downside catalysts over the next ~2 months. The first catalyst is the
Rising bond yields have the potential to create problems for momentum sectors like Tech where positioning has become crowded. Tech
The ~$3T Cares Act was largely financed by the issuance of T-bills, which means the amount of debt maturing within
US August flash PMIs extended further into expansion territory with manufacturing coming in at 53.6 vs consensus for 52, and
At new highs, the S&P 500 may not face overhead supply but technical resistance still exists. At the moment, the
US August flash PMIs extended further into expansion territory with manufacturing coming in at 53.6 vs consensus for 52, and
US August flash PMIs extended further into expansion territory with manufacturing coming in at 53.6 vs consensus for 52, and
The S&P 500 faded from intraday highs following the release of July FOMC meeting minutes, but there was nothing in