Week of Jul 23 2023

Market Wrap

EOW 29- Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 1.8% 4454.7→ 4618.0)

VX Surface - RVOL Spreads - VVIX / VIX Ratio - Trailing 12mo

Narratives

We expect the first Fed cut to come in 2024 Q2. We have long envisioned a fairly high threshold for cuts, with the FOMC waiting until either some risk to growth emerges or until inflation falls convincingly. In our forecast, the first cut comes when core PCE has fallen below 3% on a YoY basis and below 2.5% on a monthly annualized basis. We see some possibility that even then, the FOMC might not cut. If growth is above potential, the unemployment rate is reaching new half-century lows and financial conditions have eased further, cutting might feel like an unnecessary risk. We put a meaningful amount of probability weight on a no-cuts scenario — David Mericle, Goldman Sachs

Developed market central banks won’t be cutting rates anytime soon, but they aren’t expected to raise them too many more times, and certainly not at anything like last year’s frantic pace. The UK is the exception, but even there, terminal rate pricing has receded to ~5.85% in the wake of the better-than-expected inflation figures - Bank of America

Pretty much all of the S&P’s (index) gains this year are attributable to multiple expansion: US equities now trade in the 87%ile on a forward multiple basis. Declining profitability helped explain some of the P/E compression in 2022 but in recent quarters, S&P 500 earnings appear to have bottomed, and we expect an acceleration to 5% EPS growth in 2024 - Goldman Sachs

Individuals are the most bullish since stocks (and crypto) peaked in late 2021. Meanwhile, the net share of some 250 fund managers who are overweight global equities is still loitering in negative territory, which is to say they’re net underweight. The average year-end Wall Street target and spot US equities at the start of H2 was around 300 points - Bank of America

Week Ahead

In the US, Federal Reserve policymakers are expected to raise interest rates by 25 basis points on Wednesday. Many investors believe this will be the final rate hike of the current tightening cycle due to the sharp cooling of inflationary pressures and signs of loosening in the labor market. On the economic data front, Q2 GDP growth is expected to have been 1.6%, marking the weakest pace of expansion since the recession recorded in the first half of 2022. Other economic releases to follow include personal outlays and income, PCE price index, durable goods orders, flash S&P Global PMI survey, Case-Shiller home prices, second-quarter employment cost index, new and pending home sales, and consumer confidence updates from both the Conference Board and the University of Michigan. The advance estimates of goods trade balance and wholesale inventories will also be in the spotlight. Finally, investors will closely follow the earnings calendar that is packed with results from major tech companies such as Alphabet, Microsoft, Meta, and Amazon, as well as corporations including 3M, General Motors, Spotify Technology, Verizon Communications, Snap, Visa, AT&T, Automatic Data Processing, Boeing, CME Group, Coca-Cola, QuantumScape, Mastercard, McDonald's, Ford Motor, Intel, Chevron, Exxon Mobil, and Procter & Gamble - TradingEconomics

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Calendar (UTC-4)

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Major Economies

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	229.94	229.97	228.39	January 1, 2023
Forward 4-qtr PE	🔵	19.7	19.6	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.07	5.11	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	11.05	10.85	0.2	1.84%
SPX GEX Flip	🔴	4,402.5	4,427.5	-25	-56%
SPX Skew Adjusted GEX	🔴	4,405,868,784	6,165,453,506	-1,759,564,722	-28.54%
Equity Put/Call Ratio (CBOE)	🔵	0.56	0.48	0.08	16.67%
VIX Put/Call Ratio (CBOE)	🔴	0.19	0.55	-0.36	-65.45%
SPX/W Put/Call Ratio (CBOE)	🔴	1.43	1.48	-0.05	-3.38%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

E-mini S&P 500 futures were slightly lower Friday with the Sep contract finishing the session at 4564.75, lower by 0.75. Across all maturities, volume was a light 1,435,282, with the Sep contract seeing 1,432,643 done. Overall open interest shed 21,750 (0.97%) to end the session with 2,218,207 outstanding. The Sep maturity decreased 1.00%, or 21,750, to finish at 2,196,405.

The July E4C 3725 put saw the most changing hands with 35,115 contracts done. For Sep options, the 4650 calls had the high volume with 1,362 done, and the most actively traded put was the 4200 strike with 2,467 contracts traded. Option open interest is highest for the July EW4 4650 calls at 19,044, and the July E4C 3725 puts at 35,245.

As measured by the 30-day at-the-money, implied volatility closed the session moderately lower, off by 0.30% to finish at 11.02%. Dropping 0.0510%, historical volatility (as measured by the 30-day) closed at 9.43%.

Higher TF (W → D) BULLISH - Momentum has downshifted after printing a plausible interim high of 4609.25 (+0.97%) following eight consecutive days of gains. The mid-week pullback, however, was confined to a retest of the weekly value area, coincidental to the MVAH. If the market closes below 4528 (-0.81%), the Weekly 1TFU configuration will cease, and signal a change of character. Meanwhile, the higher timeframe trend structure remains bullish above the prior weekly low of 4411.25 (-3.36%), which is beyond the -2σ (W) expected range.

Lower TF (3H → M30) NEUTRAL - Commencement of a pullback, facilitated by a shorter timeframe counter-trend, was signaled by cessation of DTF 1TFU and momentum tapering. These conditions emerged in the lower timeframes of the prior week, and expanded into higher timeframes during Week 29. The upcoming week’s news and earnings docket is chalk full of market moving potential. The lower timeframe structure and momentum suggests unfinished business below - with noted unmitigated demand zones (green shaded) within close proximity.

Bull v Bear

This Week (30d ATM IV 11.02% v 30d RVOL 9.43%)
Bulls will seek to defend the 4550 Demand Zone, and ideally recapture DTF 1TFU > 4590 on a closing basis. Upside: > WHI 4609.25 (+0.97%) is within +1σ (W) 4638.50 (+1.62%).
Bears will seek extend DTF 1TFD, and ideally break WLO 4528 (-0.81%) on a closing basis. Downside: < 4500 (-1.42%) is just within the -1σ (W) 4493 expected range (-1.57%).

Last Week (4564.75 SEP23 +0.61%)
Bulls will seek to extend > WHI 4560.50 (+0.52%) and ideally 4600 (+1.39%) on a closing basis. Upside: Q222 LH 4631 (+2.08%) is marginally beyond the +1σ (W) 4609 (+1.59%).
Bears will seek recapture DTF 1TFD and retrace < the trailing 4w VAH 4484.75 (-1.16%) on a closing basis. Downside: WLO 4411.25 is just within the -2σ (W) expected range (-3.06%).

Indicators

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Markets

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Positioning

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Sentiment

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Volatility

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Breadth

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Disclaimer

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Sources