The market had a quiet trading day yesterday, and the market continued to maintain momentum this week after the dovish developments last week (Fed policy is more inclined to a weak job market, slow JOLTS/non-farm data, weaker economic data and the market faces a large fixed income short position) boosted risk sentiment. Due to the lack of front-line economic data before the CPI data release on May 15 (a week later), and the fact that companies reporting earnings only account for about 7% of the SPX market value, and there are no Fed heavyweights such as Powell and Waller waiting to speak, the market is more likely to be technically driven in the near term.
Speaking of momentum, bond yields have retreated sharply after testing overhead resistance, falling 20–30bps over the past week. In equities, SPX futures have reclaimed their 50-day moving average, with recent all-time highs once again in sight, though short-term technicals do look a bit overbought. Cross-asset volatility has also declined, with equity volatility retreating to cycle lows, followed by interest rates and FX volatility, especially USD/CNH and USD/JPY, which have retreated to recent ranges. Our view remains that the market is likely to slowly move higher in the near term until the market finally decides that “bad (economic) news” is clearly “bad news” for future earnings and growth.
On the crypto front, not much news other than more SEC action, this time targeting Robinhood’s crypto division. BTC prices continue to reflect the ups and downs of stock market sentiment, with SPX futures and BTC showing striking similarities over the past month. We expect crypto prices to move in sync with stocks in the absence of new catalysts (where’s the halving talk?), though crypto prices still favor the upside given the massive leveraged long liquidations in April. Best of luck trading everyone.
