May 26, 2021
Narrative: The S&P 500 has been rangebound since early-April with leadership shifting between growth and value sectors. The recent, mild softening in US economic data has 10-year Treasury yields retracing to support near ~1.55% and equity investors shifting back to a growth/Tech bias. Many commodity prices have also pulled back from recent highs as China steps up measures to curb input costs and investors dial back worst-case inflation fears after the Fed acknowledges a interest in tapering asset purchases.
Catalysts: Friday’s release of April core PCE has probably been de-risked by the spike in core CPI, which probably makes the May Jobs Report next Friday (6/4) the most important near-term catalyst. Rising expectations for another relative payroll disappointment also make next Friday’s data incrementally more important. An above consensus (+750,000) payroll gain would take bond yields and value sectors higher, whereas a disappointing number (somewhere below +300,000) would probably be short-term bearish for the broad market. The June 16 FOMC meeting and policy announcement is still the expected clearing event for bond yields. Look for 10-year yields to hold near-term support at ~1.55% with very strong secondary support at ~1.45% acting as a floor. Look for yields to test ~1.69% in mid-June with an impulsive release to ~1.79% shortly thereafter and the 1.90-1.98% range still the main target.