Morning Notes — SPX, NDX and SVX

SPX: The total pullback in the S&P 500 (SPX) that followed mid-March price trend deceleration matched our expectation for the index to find support in the 3850-3900 range.  A similar deceleration of price trend momentum from late-February generated a slightly larger pullback.  Both occurred as bond yields released through technical resistance levels.  The late-February yield backup took 10-year yields through strong technical resistance at ~1.45%, while the move from mid-March was far-less dramatic.  The SPX’s heavier weighting to growth makes it susceptible to pullbacks when yields rise. If higher yields only reflect an improved growth outlook, the SPX should eventually resume its uptrend.  The behavior of the SPX since the November 9 vaccine data looks very similar to past early cycle recoveries. As such, the S&P 500 should be able to grind higher until there’s a change to the macro outlook, which often reveals itself in market internals days/weeks prior to it making headlines.  At the moment, our only major concern is the record bullish sentiment in this week’s AAII survey.  Bullish sentiment is a contrarian indicator that often precedes a correction by several weeks under ‘normal’ circumstances. But current circumstances are far from normal with US consumer balance sheets in their best shape in 40+ years and year-over-year money supply growing at 27.1%.

NDX: After holding support in the 12200-12400 range, the NASDAQ 100 (NDX) is now in the process of testing its February high of 13807.  Growth outperformance can persist as long as bond yields continue to consolidate. Expect the NDX to successfully test 13807 and push toward 14000 before fading as bond yields advance through ~1.74% sometime in Q2.  

SVX: The S&P 500 Value Index is little changed, despite the consolidation in bond yields. Thus far, the consolidation in yields has only driven outperformance in growth and a 5% uptick in the S&P 500 Growth/Value ratio.  The ratio is fast approaching resistance of its own and many of our favorite value stocks are approaching short-term oversold conditions and an attractive place to add cyclical/value equity exposure.