Week of May 30 2021

Market Wrap

As of @May 28, 2021

Narratives

The crucial question going forward is what becomes of the Fed bid, which has absorbed 40% of new issuance in recent quarters? The risk-friendly backdrop facilitated by a well-behaved US bond market, capped nominal yields, inflated price expectations, and very soft real rates is likely to be increasingly challenged in H221. The shift in policy emphasis, at first in balance sheets, should become more self-evident into H2. The key consideration is whether the COVID downturn is viewed as a release of past excesses from which a new cycle was born; or simply a brief collapse in GDP that is about to be quickly retraced (in which case it is plausible that we're actually in the latter stages of the old mature cycle) - Alan Ruskin, Deutsche Bank

Nominals in the US are limited in their capacity to rise despite higher inflation expectations. The identity relationship implies that real yields have nowhere to go and will remain at unusually low levels relative to real growth expectations - Deutsche Bank

The combination of peak positioning, policy, and profits (the 3 Ps) along with rising rates, regulation, and redistribution (the 3 Rs) presage low or negative returns for equities and credit out three to six months - Bank of America

Sure, there are base effects, but core PCE has risen more than 1% in the last two months alone, so the current inflation dynamic is very real. Another plunge in retail inventories augurs an ongoing mismatch between demand for goods and the supply that retailers have in stock - Bloomberg

Week Ahead

It will be a busy week, with the US jobs report and worldwide manufacturing and services PMIs providing an update on the economic recovery as well as supply constraints and price pressures. Other important releases include GDP figures for India, Brazil, Australia and Canada, monetary policy decisions from the RBA and the RBI, and inflation for the Euro Area.

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America

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Europe

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Asia

FactSet Earnings

With 95% of the companies in the S&P 500 reporting earnings for the quarter, the blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) revenue growth rate for the first quarter is 10.7%. If 10.7% is the actual growth rate for the quarter, it will mark the highest year-over-year revenue growth reported by the index since Q3 2011 (12.5%) - FactSet

The term "Inflation" was mentioned at least once during the earnings conference calls of 187 S&P 500 companies from March 15 through May 24.
The Consumer Discretionary sector reported the highest earnings growth of all 11 sectors in the S&P 500 at 231%.
The S&P 500 reported growth in earnings of 52% - the highest YoY growth since Q1 2010.
For the 22 DJIA companies reporting non-GAAP EPS, the median difference between non-GAAP and GAAP was 5.1%
59 S&P 500 companies provided positive guidance EPS guidance for Q1 - the highest number since 2006.
86% of companies reported actual EPS above estimated EPS - the highest percentage since FactSet began tracking this metric in 2008.

Metric	UpDn	This Week	Prior Week	Comments
Forward 12-mo Estimate	🔵	190.94	190.5	vs. @December 31, 2020 $159.02
Earnings Yield	🔴	4.54	4.58	vs. @December 31, 2020 4.23%
Forward 12-mo PE	⚪️	22	22	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) - May closed marginally up and maintained 1TFU albeit with notably less extension than April relative to March; unsurprising given the overdue backing and filling that played out. With respect to monthly value: April - May notably higher vs. February - March. May closed just below its VAH, but above April's VAH despite May VPOC < April. Carrying forward the remaining April 4017.25 single.

Weekly Timeframe (Full Session) - Liquidation departure singles (4190.75 & 4214.00) were repaired, increasing the odds of retesting the weak ETH ATH 4238.25. 1TFU re-established, but with a reduced range P-shaped profile, indicative of short-covering vs. initiative buyers in last week’s price action.

240min Bars (Full Session, 8-weeks) - The formation of a ~200pt TR 4029.25 → 4238.25 over the past 3-weeks remains our base case. Two similarly sized ranges formed earlier in 2021: TR 3652.50 → 3862.25 (from late Dec → January); and TR 3720.50 - 3959.25 (from February → March). The "3950" breakout continues to be confirmed via rising LTF value. ITF bullish configuration remains contingent on rising weekly value.

Split-session Daily Market Profiles - Last week we highlighted the resolution of the poorly auctioned WHI.1 (4185.00) and WLO.1 (4055.50) as likely pivots given the Inside Week. The WHI.1 was quickly taken on Monday, but limited range extension and secondary tests on Tuesday and Wednesday left dubious lows. The takeaway is that neither of the two last weekly highs (WHI or WHI.1) are secure. That said, last week printed a good excess low on the Monday RTH breakout above 4185 WHI.1 with value confirmed higher thereafter, tempered by the short-covering weekly profile & strongest selling period (of the week) occurring on Friday's M-period spike close.

Daily Split Session Market Profile: Carrying forward Wednesday @May 19, 2021 RTH LO = WLO.1 = 4055.50 poorly auctioned.

Daily Split Session Market Profile: Thursday ETH HI = WHI = 4217.50 is both weak and poor; Friday RTH HI = 4215.50 is poor. Unfinished business above is tempered by the (very) poor Thursday RTL LO = 4194.25 and Friday's 4207.00 Spike Close.

Bull vs Bear

This Week

Bulls will seek to maintain control above WHI.1, 4185, and ideally quickly regain control above Friday's 4207 closing spike. The ETH ATH 4238.25 (+0.85%) and $GAMMA Call Wall 4246 (+1.04%) are both within striking range.

Last Week

Bulls will seek to maintain control above the opening pivot, 4160.75, coinciding with TR MID 4110.50 → 4211.00. Ideally, value is established and maintained above WHI 4185.00 on a closing basis (→ WTF 1TFU).

Bears will seek to break the $GAMMA Volatility Trigger 4191.00, and ideally flip $GAMMA negative below 4167.00 (-0.84%), thereby increasing the odds of maintaining control below back to a retest of 4100 (-2.44%).

Bears will seek to regain control below the $GAMMA Volatility Trigger 4136.00 (-0.38%), within easy striking distance, and ideally break and hold the TR LO 4110.50 → 4211.00 (-0.99%) on a closing basis.

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