Week of Jun 30 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Sentiment

The outlook continues to lean positive on continued global growth and a still-resilient US expansion, supporting the base case for equities. However, analysts remain cautious of political risks, persistent inflation and potential stress points as possible left-tail catalysts. The market's perceived preference for U.S. equities, especially large-cap growth, leaves it susceptible to a correction if there is unfavorable news flow including but not limited to political or debt crises in Europe, persistent inflation, an accelerated slowdown in China, and US repo stress in Q3 as well as pre-election de-risking.

The global economy, demonstrating resilience, is projected to experience a 3.1% growth in 2024, moving further away from recessionary levels. The U.S. economy should also see an expansion between 1.5-2.0%, with the risk of recession deemed minimal. However, a deceleration in momentum is expected in the second half due to peaking global aggregate data and increasing risks. China's growth has been stronger than anticipated but recent disappointments in data present risks to its relative strength in the equity market.

Though inflation has significantly declined, progress has slowed. Additional disinflation is predicted, but persistent services inflation and surging commodity prices present risks. The Atlanta Fed anticipates inflation to reach 2% in 2025 or slightly later and suggests that rate cuts could commence before this target is achieved if inflation is evidently on the path. The prospect of more central banks worldwide easing policy is a bullish indication for equities with the (US) Fed anticipated to lower rates in the fourth quarter of 2024.

Key pivot levels for S&P 500 are 5335 for the short-term, 5105 for the medium-term, and 4725 for the long-term. Bank of America has pointed out that NASDAQ-100 risk reversal levels are at their lowest since March 2022, implying a need for caution — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, LSEG, Nomura, Oppenheimer)

This time around, Trump seeks to impose a 10% levy on all imports, and 60% on Chinese imports. But the 2018 trade war “Version 1” backdrop was strong macro: ISM at 60 and low Fed funds rate at 1.25%. Conversely, the backdrop for “Version 2” in H1 2025 is ISM <50, FFR at 5.5% and a much weaker global economy; and thus deflationary not inflationary - Bank of America

What is keeping spot pinned? In short: Vol-selling; and it’s working. Market participants aren’t shying away from selling puts; it’s not just call-selling from the buy-write ETFs. Customers are focused on ultra short-dated stuff (selling 0DTE straddles or strangles), and $10 billion of (dealer) long gamma in a 1% move is simply choking out the ability to move close to close - Nomura

The best leading indictor that goes from green to yellow to red ahead of a US recession is jobless claim, which tend to rise above 300,000 three-to-six months before a downturn. Although now trending higher, 240,000 hardly counts as high historically. We’re in no rush to upgrade our index target at this stage but expect the market to see the next upleg with the first Fed cut we see occurring in Q1 2025 - SocGen

Week Ahead

Tech stocks in the US have been driving equities, but recent bearish key day reversals and widening Eurozone sovereign spreads are causing some concerns. Key events to watch during the upcoming holiday week in the US include US ISM manufacturing, JOLTS job openings, ADP employment, ISM services, nonfarm payrolls, minutes from the June Fed meeting, and the first CPI estimate for June in Europe. Employment indicators, including payroll employment, household employment, and the unemployment rate, will also be closely monitored.

The unemployment rate is projected to hold steady at 4%, while wage growth is expected to slow to 0.3% from 0.4%. Other vital labor indicators are also due for release, including the JOLTS report, the ADP employment, and Challenger job cuts. On the other hand, the ISM Services PMI may reveal a slowdown in the services sector which forms a significant part of the US economy. Other key indicators to watch include the final S&P Global PMIs, trade balance, and factory orders.

The minutes from the Federal Open Market Committee (FOMC) will be under close scrutiny for additional insights into the Fed's plans for the rest of the year. Furthermore, the ISM Manufacturing PMI is anticipated to show a continued contraction, indicating a slowdown in manufacturing activities — Trading Economics

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Calendar (UTC-4)

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Macro Dashboard

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	252.85	253.54	243.98	January 1, 2024
Forward 4-qtr PE	🔵	21.7	21.55	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.6	4.64	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.38	10.7	-0.32	-2.99%
SPX GEX Flip	🔵	5,462.5	5,447.5	15	0.28%
SPX Skew Adjusted GEX	🔵	-2,870,867	-761,652,449	758,781,582	99.62%
Equity Put/Call Ratio	🔵	0.64	0.63	0.01	1.59%
VIX Put/Call Ratio	🔴	0.3	0.52	-0.22	-42.31%
SPX/W Put/Call Ratio	🔴	1.2	1.34	-0.14	-10.45%

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 mixed Friday with the September contract finishing the session at 5521.50, losing 24.50. Across all maturities, a light 1,258,217 contracts were traded, with 1,708,781 done in the September maturity.

Option trading centered around the July E1A 5550 calls with 16,782 changing hands and the July E1C 4750 puts with volume of 30,010. In Sep options, the most actively traded call was the 5800 strike with 1,786 done, and the 5200 put leads with volume of 1,822.

E-mini S&P 500 implied volatility finished moderately up as the 30-day at-the-money gained 0.18% to close the session at 10.03%. Historical volatility (30-day) finished the session at 6.82%, down by 0.0088%, to a twelve year low.

Higher TF (W → D) BULLISH - Zooming out highlights 2024s price action affirming a breakout from a multi-year consolidation that spanned 2022 → 2023. This breakout remains intact above the YTD LO. The Q224 correction facilitated a now confirmed Secondary Test (ST). The intermediate (day timeframe) swing structure, 5205.5→ 5588, continues to reflect price acceptance above the 5368.25 pivot, now convergent with the ascending 50d MA. But the air pocket below June’s upper HVN, coupled with a sustained unclenching of dealer gamma, risks a sweep of the monthly VA → 5363.50, coincidental with the coming week’s -2σ implied range (-2.86%).

Lower TF (4H → M30) NEUTRAL - The Inside Week signals an interim (2-week) balance (5489.75 → 5588.00) despite closing month-end price action featuring a prominent intraday reversal at ATHs. The repeated defense of the 5500 FVG also exemplified the (spot) pinning effects of relentless short-dated ATM vol-supply. That said, the lower timeframe market structure highlights the risk of negative GEX transition below the still unmitigated 5503 FVG (-0.39%), above which lower timeframe buyers remain in control. A sustained loss of ~5500 enables lower timeframe sellers to retarget the ESM24 roll gap 5437.50 (-1.52%) and 5400 (-2.2%).

Bull v Bear

This Week: 30d ATM IV 10.03% v 30d HV 6.82% +3.48%
Bulls will seek to recapture last week’s midpoint 5547.75 (+0.48%) on a closing basis. Upside: Price acceptance > ETH Absolute High 5588 (+1.2%) is within +1σ (W) 5603 (+1.48%).
Bears will seek to extend DTF 1TFD and ideally break and hold below 5500 (-0.39%) on a closing basis. Downside: ESM24 Roll Gap 5437.50 (-1.52%) is just beyond -1σ (W) 5442.00 (-1.44%).

Last Week: 5521.50 SEP24 -0.23%
Bulls will seek to recapture DTF 1TFU and ideally price acceptance above M30 FVG 5562(+0.50%) on a closing basis. Upside: Weak ATH 5588 (+0.97%) is within +1σ (W) 5621 (+1.57%).
~~Bears will seek to extend DTF 1TFD and ideally break and hold below 5500 (-0.62%) on a closing basis. Downside: < WLO 5489.75 (-0.80%) is~~ ~~within~~ ~~-1σ (W) 5450.00 (-1.52%).~~

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