Market Wrap
Outlook
Week 4 developments painted a picture of improving market internals coinciding with a moderation in near-term policy risks, particularly around trade policy implementation. The initial absence of immediate tariff actions following Trump's inauguration, coupled with signals of more moderate measures than campaign rhetoric suggested (10% vs 60% for China), and allowed markets to digest better-than-feared scenarios, contributing to multiple European indices reaching record highs and U.S. markets testing their December peaks.
The technical foundation appears increasingly constructive, evidenced by a historic breadth thrust where over 68% of S&P 500 stocks advanced for five consecutive days - a phenomenon not seen since 2019. This development gains additional significance as it occurs near market highs rather than following a deep correction, historically associated with sustained upside momentum. The financial sector has emerged as a particular point of strength, triggering a breadth thrust signal with a 38% surge while trading within 5% of highs, suggesting broad participation in the rally. This sector strength is further validated by trend scores showing financials with the second-highest percentage (65.75%) of stocks exhibiting strong trends, narrowly trailing only communication services. Key levels to monitor include SPX thresholds at 5959 (short-term), 5795 (medium-term), and 5314 (long-term), with particular attention to market behavior around December highs as a potential range breakout signal. The ability of markets to maintain momentum through next week's heavy macro calendar while holding the recent breadth thrust gains could prove decisive for near-term direction, with the combination of central bank decisions and tech earnings likely providing important validation or invalidation of the current constructive setup.
Sentiment measures have undergone a dramatic shift, with both individual investors (AAII) and institutional surveys (Investors Intelligence) showing sharp declines in bullishness just as technical measures improve. The AAII Bull Ratio experienced its largest weekly decline since 1969, dropping below 40% for only the second time since May 2023. Historical analysis suggests such sentiment washouts, particularly when occurring alongside improving technical conditions, often precede positive returns. The S&P 500 Liquidity Premium indicator has also triggered its first buy signal since September 2024, with a compelling 91% win rate over the following month in similar contexts.
The macro left tail risk centers on the potential for policy uncertainty to reassert itself, particularly if central bank messaging proves less accommodative than expected or if trade policy implementation takes a more aggressive turn than current moderated expectations suggest. The right tail scenario would involve the confluence of technical strength, sentiment recovery, and systematic buying pressure (evidenced by significant CTA buy triggers in both equities and bonds) creating a self-reinforcing upward move, especially as corporate buybacks resume with 45% of S&P 500 market cap exiting blackout periods on January 24th.
Looking ahead to Week 5, markets face a gauntlet of potential catalysts that could validate or challenge the current setup. Central bank decisions from the Fed, Bank of Canada, and ECB will provide important context for monetary policy trajectories, while Q4 GDP readings across major economies will help calibrate growth expectations. The tech sector faces a particularly crucial test with earnings from Microsoft, Meta, and Tesla on Wednesday followed by Apple and Amazon on Thursday. These events arrive as seasonal factors suggest continued strength in small caps through mid-February, and various commodities enter traditionally favorable windows.
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Forward Earnings
Metric | UpDn | This Week | Prior Week | % Baseline | Baseline | Baseline TF |
|---|---|---|---|---|---|---|
Forward 4-qtr Estimate | 🔴 | 273.17 | 273.18 | 263.39 | January 1, 2025 | |
Forward 4-qtr PE | 🔵 | 22.4 | 21.7 | 22.7 | January 1, 2025 | |
Nominal Earnings Yield | 🔴 | 4.46 | 4.61 | 4.41 | January 1, 2025 |
Volatility & Correlations
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
|---|---|---|---|---|---|
SPX Implied Volatility | 🔴 | 14.85 | 18.16 | -3.31 | -18.23% |
SPX GEX Flip | 🔵 | 6,032.5 | 6,005.93 | 26.57 | 0.44% |
SPX Skew Adjusted GEX | 🔴 | 2,220,677,610 | 2,299,345,073 | -78,667,463 | -3.42% |
Equity Put/Call Ratio | 🔵 | 0.52 | 0.43 | 0.09 | 20.93% |
SPX/SPXW Put/Call Ratio | 🔴 | 1.22 | 1.28 | -0.06 | -4.69% |
VIX Put/Call Ratio | 🔴 | 0.27 | 0.32 | -0.05 | -15.62% |
S&P 500 Futures
ATM IV30 11.14% v HV 13.97% IV-HV -2.83%Bulls will seek to hold the 6120.25 → 6162 HVN and ideally breakout to the upside and build price acceptance above. Upside: Back-adjusted ATH 6184.50(+0.84%) is within +1σ (W) 6242 (+1.77%).Bears will seek to cause cessation of DTF 1TFU with a second-leg down below Friday’s LO on a closing basis. Downside: WMID (-0.9%) and 50d MA 6048 (-1.39%) are within -1σ (W) 6028.50 (-1.71%).
Last Week: 6133.25 MAR25 +1.63%Bulls will seek a second leg up above WHI targeting a measured move above the 6017.50 breakout. Upside: MM 6073.25 and the 6107.50 → 5866 TR High are within +1σ (W) 6148 (+1.90%).Bears will seek to cause a breakout failure below 6017.50 and ideally offer back below 6000. Downside: 5961.75, protecting a large air pocket below, is within-1σ (W) 5923 (-1.83%).
Indicators
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