Welcome Investors & Traders! We are nearing a massive shift in market sentiment. Something has to give pretty soon. Stay informed (you may need to click the three dots to view the entire post)
Huge Inflection Point
WOW! Nasdaq is making new highs, S&P is flirting with a breakout, while equal weight looks like it wants to break down, and Crypto is pulling into the uptrend...The RUBBER BAND is pulling back!
The S&P 500 Equal weight Index (breadth) is struggling to find direction. Yes, there's a clear Head-n-Shoulders. 😰
But the S&P 500 index is clearly coming from a position of strength, as it tests Major Ressitance (4,200) for a 4th time this year.
There's no denying Nasdaq is in a new bull market, led by the "Big Tech Mega Cap (A.I.) Rally"
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Bitcoin is quietly holding the uptrend; nothing has changed, and the technicals are sound.
Same for Ethereum.
The Case for a Pause
Deposit flight continuesMoney Market Funds Hit New All-time Highs, suggesting "deposit flight" will continue as depositors seek opportunity in interest, barring MMF in the face of the most anticipated recession of all time.
This likely leads to more chaos, which is why the market is pricing in a PAUSE for June,
Economic Activity
Strengthening the Case for a Fed Pause
Business Activity
Regional Business Activity remains in recession territory. It looks worse than it feels. However, manufacturing remains in recession, strengthening the case for a pause.
Inflation
Shelter is 35% of Headline CPI and roughly 60% of CPI: Services – this is the "sticky" part of inflation that everyone is talking about. "sticky" is just a fancy term for lagging, and CPI: Shelter lags house prices by eighteen months. As Shelter peaks, it will point lower all of 2024.
Consumer
U.S. consumers are weakening while the Chinese economy shows signs of expansion.
Housing
As a whole, the housing market Is weak. However, homebuilders are regaining "SOME" confidence as they see demand for Multi-family housing (5 or more units).
Policy
Fed officials are begging to sound more dovish, suggesting there will be votes to support a June Pause.
Macro Forces
The cost of money and the cost of trade have risen in the past week, tightening the market while energy remains weak. However, this could be the last uptick before the disinflationary rollover.
10y Yields
The cost of capital is rising into the "RISK OFF" zone (3.65%-3.70%), reflecting the negative positioning in bonds, which in reverse is "long positioning" into bond yields.
Dollar
Debt ceiling uncertainty has caused a short-term flight to safety into the dollar. The resolution should bring this back down to support.
Crude Oil
As bank lending deteriorates, I think we see Crude eventually collapse into the '50s. Supply shocks are non-existent, and demand is quietly waning.
Closing Thoughts
Debt ceiling uncertainty remains the largest risk in the short term so as long as we get a "deal," the A.I. Bubble + Fed Pause + progress on inflation can take this market much higher because there is so much cash on the sideline waiting for opportunity.