Week of June 13 2021

Market Wrap

As of @June 11, 2021

Narratives

A multitude of traders and investors are making the case that by the time we do begin to see labor tightening, it will be offset by a fading impulse from the reopening / pent-up demand phenomenon, a (disinflationary) push from retailers to discount into said fading demand, price inputs like used vehicles — which have done a lot of the core CPI heavy lifting — increasingly moderating, all as the infamous inflation base effect begins to cut the other way. Gun to my head, I’d say that without a tighter labor market to stoke the flames again, reflation is out of gas. The reflation impulse will likely keep fading as we pivot into a ‘Goldilocks 2.0’ economic backdrop that will make it difficult for the long-end to sustain a selloff and keep a lid on real yields - Charlie McElligott, Nomura.

It’ll be another couple of months before the jobless are compelled to take what’s on offer from employers, owed to staggered expiration of (extra) unemployment benefits. If that process takes too long, the resultant wage pressure could be offset by the resolution of supply chain bottlenecks and base effects dropping out of the comps - Nomura.

Despite another really strong US core CPI print, the transitory nature of a large part of the gains as well as still-stagnant wages and an incredibly disappointing labor market, all lend further credibility to the Fed’s slow play stance and forces a positioning cleanse of insanely crowded 'Short UST’ positioning - Nomura

It’s probably not that market participants are convinced the top is in for yields or that the Fed is definitively right about the purportedly “transitory” nature of inflation. Rather, it’s more that much of this narrative was priced-in both in rates and equities during Q1. Now, it’s a waiting game - BMO

Week Ahead

Policymakers in the US and Japan will be deciding on monetary policy in the coming week, while minutes from central banks in Australia and India will also be in the spotlight. The biggest takeaways from the FOMC will be 1) continuation of tapering chatter, 2) the 2023 fed fund dot on the SEP, and 3) any shifts to RRP/IOER. Other important releases to follow include US and China industrial output and retail sales; Canada and UK inflation data; Japan's trade balance and inflation; Australia employment figures; and India consumer and wholesale prices.

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America

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Europe

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Asia

FactSet Earnings

Overall, there are 10,511 ratings on stocks in the S&P 500. Of these 10,511 ratings, 56.7% are Buy ratings, 36.8% are Hold ratings, and 6.5% are Sell ratings. Over the past five years, the average (month-end) percentage of Buy ratings is 51.6%, the average (month-end) percentage of Hold ratings is 42.4%, and the average (month-end) percentage of Sell ratings is 6.0% - FactSet

At the sector level, analysts are most optimistic on the Energy (64%), Information Technology (63%), Health Care (62%), and Communication Services (62%) sectors, as these four sectors have the highest percentages of Buy ratings. On the other hand, analysts are most pessimistic on the Consumer Staples (44%) sector, as this sector has the lowest percentage of Buy ratings. The Consumer Staples sector also has the highest percentage of Hold ratings (45%) and highest percentage of Sell ratings (11%) of all 11 sectors.

It is interesting to note that even with a 37% price increase since the mid-point of last year (June 30, 2020), analysts are more optimistic on S&P 500 stocks today compared to June 30, 2020 based on the percentage of Buy ratings. On June 30 (2020), 52.6% of ratings on S&P 500 stocks were Buy ratings compared to 56.7% today. Nine sectors have a higher percentage of Buy ratings now compared to June 30 (2020), led by the Consumer Discretionary (to 57% from 50%) and Information Technology (to 63% from 56%) sectors.

However, there has been little change at the sector level in terms of ranking by Buy ratings. The same four sectors (Energy, Health Care, Communication Services, and Information Technology) that had the highest percentages of Buy ratings on June 30, 2020 also have the highest percentages of Buy ratings today. The same three sectors (Consumer Staples, Financials, and Real Estate) that had the lowest percentages of Buy ratings on June 30, 2020 also have the lowest percentages of Buy ratings today

Metric	UpDn	This Week	Prior Week	Comments
Forward 12-mo Estimate	🔵	191.93	191.52	vs. @December 31, 2020 $159.02
Earnings Yield	🔴	4.52	4.53	vs. @December 31, 2020 4.23%
Forward 12-mo PE	🔵	22.13	22.09	vs. @December 31, 2020 26x
2y Combined Average Growth Rate %	🔵	7	6	vs. @December 31, 2020 3%

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FactSet Charts

S&P 500 Futures

Monthly Timeframe (Full Session) - The second week of June extended short-term consolidation. 1TFU continuation confirmed however with last week's modest new high. 4249.00 marks the new ATH printed on ESM1; and 4239.50 on ESU1. Continuing to carry forward the April 4017.25 single.

Weekly Timeframe (Full Session) - 4165.25 WLO.1 = MLO continues to serve as the interim ITF low. It is arguably weak given its proximity to the naked May 4161.00 POC in addition to the 4156.00 WTF single print, tempered by rising W/W value (which confirms ITF trend configuration for now).

240min Bars (Full Session, 8-weeks) - The formation of a ~200pt TR 4029.25 → 4238.25 over the past 6-weeks remains our LTF reference range, and we have adjusted the ITF range to reflect a 3-week "balance within balance": TR 4165.25 → 4239.50 (ESU1). The LTF regression channel is tied back to the Nov '20 3568.50 breakout. There is nothing abnormal about interim consolidation within the context of a LTF trend.

Point & Figure (Full Session 5x3) - Hallmark consolidation evident on the P&F. Notice however modest divergence on the Extended Volume Delta (Pane 2).

Bull vs Bear

This Week

Bulls will seek to maintain control above 4215 WHI.2. A break and hold above the $GAMMA Call Wall 4246 (+0.22%), would improve the the odds of a sustainable breakout from recent TRs.

Last Week

Bulls will seek to maintain control above WHI.1, 4215, and retake the ETH ATH 4238.25 (+0.24%). A break and hold above the $GAMMA Call Wall 4246 (+0.42%), would increase the odds of a sustainable breakout from recent TRs.

Bears will seek to break the WHI.2 4215, which coincides with the $GAMMA Volatility Trigger 4216 (-0.48%), and ideally flips market gamma negative below 4201 (-0.84%) to target a retest of a now flat 20d MA 4191.50 (-1.06%).

Bears will seek to break the $GAMMA Volatility Trigger 4191.00 (-0.88%), and ideally flip market gamma negative below 4185.00 (-1.02%) increasing the odds of a 20d MA (-1.5%) and 50d MA (-2.1%) retest.

Indicators

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Positioning

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Sentiment

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Optix

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Volatility

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Breadth

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Disclaimer

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Sources