Week of Jun 02 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Sentiment

The financial market is cautiously optimistic in the near-term, with the US economy showing resilience due to a robust labor market and strong consumer spending. However, potential fading fiscal impulse and inflation concerns could influence future economic activity. Investors are favoring a balanced approach, leaning towards growth sectors like Technology and Consumer Discretionary while also maintaining a defensive stance in areas like Healthcare and Consumer Staples.

Key risks that could shift the narrative include a reacceleration of inflation, a slowdown in economic activity due to monetary tightening, and geopolitical issues, particularly concerning the US-China relationship. Conversely, positive scenarios could arise from the cooling of inflation without significant growth impact, resolution of the debt ceiling debate, and increased real income growth.

In the rates and currency markets, expectations lean towards choppier trading and a reversion of some consensus positioning. The tone from sell-side research suggests managing risks while staying engaged in the market, with a focus on relative value, tactical flexibility, and strong stock selection — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, LSEG, Nomura, Oppenheimer)

The incredibly flat skew of the past 1.5 years actually made it more difficult to get a large selloff. To generate the conditions for a crash-down, you need steep skew because that’s indicative of client demand for hedges, which in turn means dealers are short that downside. In a selloff, they have to short futures (or buy vol) to stay hedged themselves. Those flows can act as an accelerant - Nomura

Our outlook remains broadly constructive for equities and credit, but we anticipate more choppy trading ahead and highlights a growing divergence between tech/growth leadership and deteriorating market breadth that needs to resolve. Key factors to watch include the dollar, Treasury yields, inflation data, and fund flows related to Japan - Bank of America

Taken together our analysis suggests the ISMs may be understated by roughly 1.2% relative to their pre-pandemic relationships. While moderate in magnitude, this bias would be large enough to adjust both headline ISM measures back into expansionary territory. In other words, 2024 will likely join the previous two years as soft indicator “false alarms” - Goldman Sachs

Week Ahead

In the upcoming week, US nonfarm payrolls will be a significant focus. This attention comes at a time when investors have scaled back their expectations for the Federal Reserve's rate reduction, now anticipating just a single cut. The US economy is projected to add approximately 180,000 jobs, following a gain of 175,000 jobs in April.

The unemployment rate is expected to remain steady at 3.9%, while wage growth is likely to edge up slightly to 0.3% from 0.2%. Several other labor market indicators are also on the docket, including the JOLTS report, ADP employment figures, and Challenger job cuts. Additionally, final estimates for unit labor costs and productivity are due.

In terms of sectoral growth, the ISM Manufacturing and Services PMI are anticipated to reflect an expansion in the US private sector. Wrapping up the week's economic news, the final S&P Global PMIs, trade balance, factory orders, and construction spending data will also be released - Source: TradingEconomics

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Macro Dashboard

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔵	252.89	252.61	243.98	January 1, 2024
Forward 4-qtr PE	🔴	20.7	21	20.16	January 1, 2024
Nominal Earnings Yield	🔵	4.83	4.76	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	10.67	9.54	1.13	11.84%
SPX GEX Flip	⚪️	5,287.5	5,287.5	0	0%
SPX Skew Adjusted GEX	🔴	-470,828,164	800,968,655	-1,271,796,819	-158.78%
Equity Put/Call Ratio	🔵	0.73	0.57	0.16	28.07%
VIX Put/Call Ratio	🔵	0.56	0.28	0.28	100%
SPX/W Put/Call Ratio	🔴	1.24	1.45	-0.21	-14.48%

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 higher Friday with the June contract finishing the session at 5295.50, up by 42.50, in a wide-ranging session. Total volume came in at a one month high of 2,471,612, with June seeing a heavy 2,452,894 done. Combined open interest dropped 39,049 (1.78%), with June off by 44,384, or 2.10%, to 2,072,979.

The June E1B 4550 put saw the most changing hands with 38,950 contracts done. For June options, the 5300 calls had the high volume with 3,801 done, and the most active put was the 5000 strike with 11,383 contracts changing hands. Calls with the largest open interest are the Sep 5500 strike (28,454), and for the puts are the June E1A 4300 strike (45,662).

As measured by the 30-day at-the-money, implied volatility ended the day sharply lower, down by 0.94% to settle at 10.69%. Off by 0.37% to a one month low, historical volatility (as measured by the 30-day) ended the day at 10.41%. As measured by the 30-day, the 25-delta Risk Reversal closed the session sharply higher, up 0.56% to end at a one week high of -2.52%.

Higher TF (W → D) NEUTRAL - The last 2 weeks has tested (and rejected) both above and below the May value area before settling back in between adjacent to the GEX transition zone. Friday’s responsive bid occurred precisely at the 50d MA and midpoint of the 5036.25 → 5349 TR, demonstrating continued respect for technical levels. A prominent bullish FVG has now been mitigated, and the weak ATH 5368.25 can be retargeted, conditional on confirming WLO as a HL. Buyers remain in control > 5250 → WMID 5272.25 (-0.44%). Conversely a swift loss of 5250 (-0.86%) on steepening skew risks loss of the 50d MA 5217 (-1.48%) and a further leg down.

Lower TF (4H → M30) NEUTRAL - Month-end price action featured a plausible interim low marking the conclusion of a -3% pullback from the previous week’s rejection at new highs. We noted and carried forward the failure to mitigate local FVGs, and that structure was repaired on Friday, before a massive short-covering rally retraced back to the base of the 5305 → 5349 zone. The most constructive price action in the coming week would be recapturing positive GEX and breaking back above this zone (+1%). That said, odds favor resistance at the GEX transition zone, but buyers will conversely seek defend dips back to 5256.25 → 5272.25.

Bull v Bear

This Week: 30d ATM IV 10.69% v 30d HV 10.41% +0.28%
Bulls will seek to hold 5272.25 and ideally breakout > 5349.00 on a closing basis. Upside: Weak ATH 5368.25 (+1.37%) is just within +1σ (W) 5377 (+1.54%).
Bears will seek to offer below 5256.25 (-0.74%) on a closing basis. Downside: 50d MA and WLO 5205.50 (-1.70%) is just beyond -1σ (W) 5217.00 (-1.48%).

Last Week: 5295.50 JUN24 -0.49%
~~Bulls will seek to hold 5305.75 and ideally breakout > 5349.00 on a closing basis. Upside: WHI & weak ATH 5368.25 (+0.88%) is~~ ~~within~~ ~~+1σ (W) 5397 (+1.42%).~~
Bears will seek to offer below 5305.75 and ideally Friday’s Low 5285.75 on a closing basis. Downside: WLO 5273.50 (-0.90%) is within -1σ (W) 5248.00 (-1.38%).

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