Market Wrap
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
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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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
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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% |
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%.
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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