Week of Jun 16 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Sentiment

The US economic trajectory, and specifically inflation data, has strengthened expectations for an upcoming Federal Reserve easing cycle. However, there is ongoing debate regarding the timing and pace of these cuts. Some firms argue that milder inflation alone could prompt the Fed to implement cuts as early as September. This could be followed by swift, successive measures, particularly if the labor market also shows significant cooling.

On the other hand, firms like BofA Securities have adjusted their forecasts, pushing the first 25bps cut to December 2024. This would be followed by a very gradual easing path, with just four additional cuts in 2025, leading to a terminal rate within the 3.5-3.75% range. The prevailing narrative suggests that the moderating growth and inflation in the US allows for a patient, data-dependent response from the Fed.

However, the global outlook appears more complex, with rising uncertainty around potential fiscal policy loosening in France that could challenge European integration efforts. This political risk could tighten financial conditions and create a need for deeper future easing from the European Central Bank (ECB). At the same time, persistent inflation could delay full easing cycles from Asian central banks.

These divergent regional trajectories have clouded previously clear disinflationary forecasts, introducing new uncertainties into asset pricing across equities, bonds, currencies, and commodities over 6 to 12-month horizons. Technical thresholds, such as sell signals, are being closely monitored, although conviction levels vary — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, LSEG, Nomura, Oppenheimer)

5600 at year-end is our updated base case (from 5200 based on previously assuming a year-end forward multiple of 19.5x on a lower bottom-up consensus 2025 EPS estimate). We still expect some multiple compression from current levels, but the index should nevertheless trade above 20x at year-end. And we now expect a collective 2025 EPS estimate of $279 (5578 SPX) - Goldman Sachs

What tends to happen before S&P 500 stocks peak? There is no single holy grail indicator, but the confluence of various signals that have yielded fewer false positives being triggered may highlight increasing downside risk. As of today, 40% of the signposts we have found to be predictive have been triggered versus 70% before prior market peaks - Bank of America

How goods prices behave is an important input to whether the Fed has sufficient confidence that inflation is returning to the 2% target. Goods price deflation will end at some point and whether inflation can be considered low and stable will then depend on services inflation. The Fed received good news in May with the first monthly decline in services inflation since September 2021 - Bank of America

Week Ahead

The upcoming week in the US will be abbreviated due to the Juneteenth Day holiday on Wednesday. Despite the shorter week, investors will keep a keen eye on public appearances from Federal Reserve officials. This scrutiny is aimed at assessing the potential for multiple rate cuts in the current year, even in light of the Fed's recent indication of only a single rate cut.

Key economic indicators will also come under the spotlight. These include the retail sales data, which is expected to show a rebound of 0.3%. Observers will also be watching the industrial production numbers, which are anticipated to have risen by 0.2%, bouncing back from a flat reading in the previous month.

Furthermore, the S&P Global flash PMIs will provide an initial glimpse into the economic activity for June. Both manufacturing and services growth are predicted to slow down. Other important data releases include building permits, housing starts, the NAHB housing market index, NY Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index, and existing home sales — Trading Economics

‣

Calendar (UTC-4)

‣

Macro Dashboard

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔵	253.42	253.27	243.98	January 1, 2024
Forward 4-qtr PE	🔵	21.4	21.1	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.67	4.73	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	9.98	10.28	-0.3	-2.92%
SPX GEX Flip	🔵	5,362.5	5,307.5	55	1.04%
SPX Skew Adjusted GEX	🔴	-3,131,233,870	-1,826,856,231	-1,304,377,639	-71.4%
Equity Put/Call Ratio	🔴	0.58	0.73	-0.15	-20.55%
VIX Put/Call Ratio	🔴	0.24	0.56	-0.32	-57.14%
SPX/W Put/Call Ratio	🔵	1.58	1.24	0.34	27.42%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

June E-mini S&P 500 futures closed at 5437.50 Friday, down by 1.00, in higher trade across the board. Combined volume was a heavy 2,204,449, with the June maturity seeing 1,705,615 traded.

Option volumes were highest for the June E3A 5575 call (10,904) and the June E3D 4475 put (47,000). For June options, the 5500 calls were the most active with 7,407 changing hands, and the high volume put was the 5400 strike with 5,107 contracts traded.

Implied Volatility ended the session up with the 30-day at-the-money gaining 0.33%, to finish at 10.00%. The 30-day historical volatility finished the session dropping by 0.49% to a twelve year low of 7.46%. The volatility spread (30-day, IV-HV) ended the session at a one month high of 2.54%, having increased 0.83%. As measured by the 30-day, the 25-delta Risk Reversal finished the session sharply lower, dropping by 0.48% to end at a one week low of -2.27%.

Higher TF (W → D) BULLISH - June value has confirmed new highs, momentum has turned upward, and higher timeframes are synchronized into 1TFU structures. The weak prior high, 5368.25, has been cleared on a closing basis, and the technical “bull flag” pattern is indicative of trend resumption. Higher timeframe buyers remain in control above the strong (non back-adjusted) May LO 5205.50; the back-adjusted level, 5270.50 (-4.21%), is well below -2σ (W) 5342 (-2.91%).

Lower TF (4H → M30) BULLISH - Wednesday’s departure gap resulted in a new ATH 5519.50 (ESU24), with subsequent consolidation sufficient to form a trending double-distribution weekly volume profile (pane 2, right justified). The weekly pullback low coincided with near 100% mitigation of the prominent FVG/LVN, before recapturing the upper distribution and closing adjacent to the WVPOC. Lower TF buyers remain in control > 5462.50 (-0.72%), the back-adjusted W24 pullback low.

Bull v Bear

This Week: 30d ATM IV 10.00% v 30d HV 7.46% +2.54%
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%).

Last Week: 5437.50 JUN24 +1.47%
Bulls will seek to establish price acceptance at or above ATH 5385.50 on a closing basis. Upside: 5400 (+0.83%) is within +1σ (W) 5433 (+1.44%).
~~Bears will seek to quickly cause cessation of DTF 1TFU on a closing basis. Downside: 5300 and WVAL (-1.08%) is~~ ~~within~~ ~~-1σ (W) 5280.00 (-1.41%).~~

Indicators

‣

Markets

‣

Positioning

‣

Sentiment

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Sources