Week of Jul 14 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Sentiment

The prevailing view is that the worst of the US inflation crisis is over, with recent CPI data indicating a return to the Fed's target. This has led to expectations for rate cuts later this year, possibly starting in September. JP Morgan suggests that a benign inflation environment is favorable for risk assets, with private equity and real assets offering diversification benefits. However, Goldman Sachs and Bank of America warn that underlying pressures from a tight labor market and strong consumer spending could keep inflation elevated, complicating the Fed's policy and delaying rate cuts.

Tactically, recent inflation data triggered a shift in equity markets, with tech stocks declining and cyclical/value sectors like financials and small caps outperforming. The Russell 2000 breaking above its March highs is a key technical indicator for potential market leadership change. Q2 earnings season is expected to drive stock-specific volatility.

Longer-term, geopolitical fragmentation, de-globalization, and climate change could make inflation more volatile and difficult to manage. The Russell 2000's breakout is significant for potential rotation into value/cyclical stocks, while key rates to watch include 10y Treasury yields above 4% (bearish) or below 3.5% (bullish), with Bank of America favoring a bullish outlook on the long-end over the next 6-12 months (as a hedge against prolonged inflation and a potential hard landing).

Overall, while the end of the rate hike cycle seems near, opinions differ on the timing and path of rate cuts and the sustainability of disinflation. Navigating these uncertainties will require a flexible, stock-specific approach, while considering broader structural shifts and risks in the post-pandemic investment landscape — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, LSEG, Nomura, Oppenheimer)

Client flows into Treasurys have heavily favored bills for obvious reasons (inverted curve, no duration or credit risk) so that’s the first “P”, positioning. The second “P”, political centers are collapsing in the Western world and amid electoral distrust. The 3rd “P”, policy is that the Fed’s going to cut. And the 4th “P”, profits, centers on hard landing odds set to rise; thus it’s wise to sell the first rate cut - Bank of America

As Q2 earnings kicked off this week, what stands out is the extreme richness of single stock volatility. S&P 1M implied dispersion, as measured by the DSPX index, jumped to a near record high of 31.3% while implied correlation as measured by COR1M fell to a new record low of 4.1%. The spread between COR1M vs SPX vol widened to a new record of 21.2% exceeding the previous high set last July - CBOE

IWM traded up 3.59% while RTY vol saw a +2 STD move upwards. Clients chased the move higher through calls and call spreads (the call wing is inverted now) as we saw the highest call volume of all time. Similar volumes were seen in other rate sensitive pockets of the market, especially in names like IEF. Later in the day, we saw hedging hedges through SPX put spreads or rolling existing positions out - Goldman Sachs

Week Ahead

Earnings season will enter full swing with releases from major companies with market caps over $100M, including Novartis, GS, BlackRock, United Health, BoA, Morgan Stanley, Charles Schwab, Progressive, J&J, Elevance Health, ProLogis, Netflix, Abbott, Intuitive Surgical, Blackstone, Marsh & McLennan, Reliance, and Amex.

In the US, retail sales are expected to show no growth last month after a slight 0.1% increase in May, indicating a slowdown in consumer spending. Industrial production is forecasted to increase by a modest 0.3%, down from a revised 0.7% growth. Key housing market data, such as building permits, housing starts, and the NAHB housing index, will be closely watched.

Additionally, the NY Empire State Manufacturing Index and the Philadelphia Fed Manufacturing Index will be released. Investors will also pay attention to speeches from Fed officials, including Chair Powell at the Economic Club of Washington, DC — Trading Economics

‣

Calendar (UTC-4)

‣

Macro Dashboard

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	261.17	261.39	243.98	January 1, 2024
Forward 4-qtr PE	🔵	21.4	21.2	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.7	4.72	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	9.92	10.01	-0.09	-0.9000000000000001%
SPX GEX Flip	🔴	5,562.5	5,787.5	-225	-3.8900000000000006%
SPX Skew Adjusted GEX	🔴	-4,072,435,602	-3,732,645,952	-339,789,650	-9.1%
Equity Put/Call Ratio	🔵	0.57	0.56	0.01	1.79%
VIX Put/Call Ratio	🔴	0.46	0.58	-0.12	-20.69%
SPX/W Put/Call Ratio	🔴	1.26	1.43	-0.17	-11.89%

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 Sep contract finishing the session at 5664.75, up by 25.00. Total volume was 1,685,671, with the Sep contract seeing 1,684,437 done. Across all maturities, open interest rose by 17,612 (0.86%), with Sep higher by 17,343, or 0.85%, to 2,061,376.

Option trading centered around the July EW3 5700 calls with 11,761 changing hands and the July E3B 4750 puts with volume of 74,092. Option open interest is largest for the Sep 5500 calls at 35,806, and the July E3B 4750 puts at 74,224.

Implied Volatility ended the session moderately down with the 30-day at-the-money off 0.47%, to finish the day at a one week low of 9.95%. Historical volatility (30-day) closed the session at 7.08%, dropping by 0.35%.

Higher TF (W → D) BULLISH - 2024s price action continues to confirm a breakout from TR 3502.00 → 4808.25 (+27.17%). Bullish structure remains intact above the April correction low, 4963.50 (-12.38%), which the rising 200d MA 5000 (-11.73%) has now cleared. Initiative buyers have also confirmed a breakout above the June range: 5205.5→ 5588. Responsiveness would be anticipated at July’s MVAL 5592 (-1.28%) should Friday’s pullback gain traction. We also note the (3) unmitigated DTF FVGs, which extend to the MVPOC.1 5532 (-2.34%) inside July’s overlapping range. Collectively these are (eventual) backing & filling targets.

Lower TF (4H → M30) BULLISH - Price acceptance above 5588 is evidenced by the formation of weekly value outside and above the prior week range. Responsive sellers strongly defended the 138.2% breakout extension (relative to June’s range), and plausibly marked an interim high. Notice that price settled adjacent to the midpoint of the 5630 → 5707.75 swing structure, with unmitigated FVGs both above and below. Loss of 5630 → 5620 on a closing basis risks both negative gamma transition and WLO (-0.95%). Meanwhile the lower timeframe bullish market structure remains intact, and buyers remain in control > 5600 (-1.14%).

Bull v Bear

This Week: 30d ATM IV 9.95% v 30d HV 7.08% +2.87%
Bulls will seek to establish price acceptance above WVAH 5670 and ideally extend WTF 1TFU on a closing basis. Upside: +150% PO 5746.75 is within +1σ (W) 5748.50 (+1.49%).
Bears will seek to offer below 5630 → 5620 on a closing basis. Downside: Negative GEX transition < 5600 (-1.14%) is within -1σ (W) 5583.00 (-1.44%).

Last Week: 5664.75 SEP24 +0.82%
Bulls will seek to maintain price acceptance above 5588 and ideally extend WTF 1TFU on a closing basis. Upside: +123.6% PO 5678.25 (+1%) is within +1σ (W) 5705 (+1.49%).
~~Bears will seek to cause a perceived breakout failure (< 5588) and ideally close below WMID 5564.25 (-1.02%). Downside: Naked MVPOC 5532 is just~~ ~~beyond~~ ~~-1σ (W) 5540.50 (-1.44%).~~

Indicators

‣

Markets

‣

Positioning

‣

Sentiment

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Sources