Week of Jun 23 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Sentiment

Analysts continue to project a resilient global narrative with higher growth forecasts for 2024-2025 compared to their previous projections. They expect global GDP growth of 3.2% in 2024 and 3.3% in 2025-2026. BofA notes continued US economic outperformance relative to other developed economies, with US growth forecast at 2.5% in 2024. They anticipate a gradual decline in global inflation to 3.1% in 2024 and 2.7% in 2025-2026.

Inflation is a key focus due to its persistence, however, signs of moderation are observed. Analysts anticipate a gradual global inflation decrease and predict the Federal Reserve would start cutting rates by December 2024, reflecting the balance between managing inflation and supporting economic growth.

Despite resilience in the labor market, there are signs of decreasing consumer demand. Investors show interest in hedging strategies despite the positive market performance, indicating caution.

Potential risks include a potential economic slowdown, geopolitical tensions escalation, and an economic deceleration in China. Conversely, more persistent inflation, stronger global growth, and faster monetary policy easing if inflation declines rapidly are potential upside risks — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, LSEG, Nomura, Oppenheimer)

The steady flow support from the gradual covering of short positions has suppressed realized vol, creating additional space for volatility targeting investors or investors with volatility based risk management frameworks to take bigger equity positions in notional terms. The declining short interest over the past year in these ETFs has become the equivalent of an implicit short vol trade - JPMorgan

We see significant value in long gold positions as a hedge against the risk of inflationary US policies after the elections. Higher tariffs, slower immigration, and tighter sanctions on Iranian oil on the supply side, and lower taxes, and stronger attempts to influence Fed policy on the demand side, all point to larger upside inflation risks in an (odds increasing) Republican sweep scenario - Goldman Sachs

The $8.7 billion that flowed into tech-focused equity products was the most ever, as no one thinks they have enough AI. The latest Nvidia-led push and the ease with which it added a trillion dollars of market capitalization has pushed the S&P 500’s market capitalization as a percentage of GDP to 169.4%, just shy of the all-time record reading of 170.65% registered in Q4 2021 - Bank of America

Week Ahead

In the coming week, the Personal Consumption Expenditures (PCE) inflation data for May, which measures inflationary pressures, will be one of the most anticipated economic releases. This is particularly important since recent data from the Consumer Price Index (CPI) and Producer Price Index (PPI) have fallen short of expectations. The Federal Reserve officials' speeches and the release of the annual bank stress tests results will also offer valuable information about potential economic policy changes.

Alongside the PCE data, changes in consumer spending and income, projected to show slightly accelerated increases, will be monitored. The third estimate for Q1 GDP growth will provide insight into the overall economic health of the country. Other reports to watch include the goods trade balance and durable goods orders, which can offer valuable insights into the state of trade and consumer confidence.

Regional Purchasing Managers Indexes (PMIs), housing market indicators, and speeches from several Federal Reserve officials will also draw attention. PMIs, including the Dallas Fed Manufacturing Index, Richmond Fed Manufacturing Index, Chicago Fed National Activity Index, and Kansas Fed Manufacturing Index, reflect the health of the manufacturing sector. Housing market indicators, such as the S&P/Case-Shiller home prices, Federal Housing Finance Agency (FHFA) house prices, along with new and pending home sales, provide insights into the housing market — Trading Economics

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Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔵	253.54	253.42	243.98	January 1, 2024
Forward 4-qtr PE	🔵	21.6	21.4	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.63	4.73	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	10.7	9.98	0.72	7.21%
SPX GEX Flip	🔵	5,447.5	5,362.5	85	1.59%
SPX Skew Adjusted GEX	🔵	-761,652,449	-3,131,233,870	2,369,581,421	75.68%
Equity Put/Call Ratio	🔵	0.63	0.58	0.05	8.62%
VIX Put/Call Ratio	🔵	0.52	0.24	0.28	116.67%
SPX/W Put/Call Ratio	🔴	1.34	1.58	-0.24	-15.19%

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 lower Friday with the Sep contract finishing the session at a one week low of 5534.25, losing 10.25. Overall, a heavy 2,384,654 contracts changed hands, with 1,247,558 traded in Sep.

Option volumes were largest for the July E2D 100 call (5,000) and the June E4A 4800 put (53,475). In Sep options, the most actively traded call was the 5600 strike with 1,743 done, and the 4400 put leads with volume of 4,950.

Implied Volatility finished the day down with the 30-day at-the-money dropping 0.33%, to end the session at 10.50%. Higher by 0.0689% to a one week high, historical volatility (as measured by the 30-day) ended the day at 7.44%.

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 April correction facilitated a now confirmed Secondary Test (ST). The current swing structure, 5205.50 → 5588, has conclusively broken structure above 5333.50, just above the (once again) ascending 50d MA. The bottom line is that secular and cyclical structures are being confirmed. A correction will likely coincide with a transition back into negative GEX, and would likely attract responsiveness near the 5365.50 JUN VPOC (-3%).

Lower TF (4H → M30) NEUTRAL - Selling pressure emerged (Thursday → Friday RTH) into the highest ever recorded triple-witching options expiration, and second highest (underlying) volume day of the year. Price action was more than likely attributable to dealer long gamma being rolled off, just to be replenished by systematic vol sellers. It ended with little to no fireworks and a neutral position of weekly close (back within the value area and near the GEX transition level). Lower timeframe buyers remain in control > unmitigated FVG 5503, below which risks mitigating the ESM24 roll gap 5437.50 → WLO.1 5399.50 (-1.75% → -2.43%).

Bull v Bear

This Week: 30d ATM IV 10.50% v 30d HV 7.44% +3.06%
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%).

Last Week: 5534.25 SEP24 +0.62%
Bulls will seek to recapture DTF 1TFU and ideally price acceptance above ATH 5519.50 (+0.31%) on a closing basis. Upside: 5600 (+1.78%) is above +1σ (W) 5585 (+1.50%).
~~Bears will seek to break and establish price acceptance below 5462.50 LVN on a closing basis. Downside: 5427.50 (-1.37%) FVG & Swing MID is~~ ~~within~~ ~~-1σ (W) 5423.00 (-1.44%).~~

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