Market Activity Ahead of a Catalyst-Heavy Week
The market is bracing for a storm of risk catalysts this week, including 41% of SPX earnings and a handful of key macro data such as JOLTS, GDP, PCE, and NFP. Today, however, the market experienced a quiet short squeeze higher, aided by better-than-expected manufacturing activity data from the Dallas Fed. This positive data has contributed to the momentum in the Citi US Macro Surprise Index.
Rate-Cut Expectations and Market Volumes
The positive data has led to a decrease in rate-cut expectations, with 2024 now evenly split between 1 and 2 25bp cuts and 2025 pricing in just 3 cuts. Goldman's trading desk has noted a decrease in market volumes by 5% and a top of book depth of only $8.4mm. This has led to a "squeezy price action" in stocks, with Bitcoin Equities, China ADRs, Non-Profitable Tech, and Most Short Rolling all experiencing major squeeze days.
Corporate Buybacks and Market Performance
Today also marked the first day of the estimated open window period for corporate buybacks, with about 50% in open window today. Several companies have already started entering into new 10b5-1 plans over the past week. Small Caps were the day's best performer, while Nasdaq was the laggard, barely holding on to unchanged. The S&P lagged The Dow.
Volatility and Bond Yields
Despite the VIX being lower today, the vol term structure for the S&P 500 is very much anticipating some malarkey over the next couple of weeks. Bond yields pushed higher with the 'Trump Trade', with yields up 3-4bps across the curve. However, it was a wild day in bond-land with TSYs bid across Europe and then offered during most of the US session.
Bitcoin and Crude Prices
Bitcoin surged back up within a few ticks of $70,000. On the other hand, crude prices took a hit today as the Iran-Israel theatrics seemed to calm traders minds and erase geopolitical risk premium.
USA Sovereign Risk
USA Sovereign risk continues to rise quietly behind the scenes, as the world bids on the ultimate 'insurance' bet into an election surprise.
Bottom Line
The market is in a state of anticipation as it braces for a week filled with potential catalysts. The positive data from the Dallas Fed and the decrease in rate-cut expectations have led to a quiet short squeeze higher today. However, with the vol term structure for the S&P 500 anticipating some malarkey over the next couple of weeks, it remains to be seen how the market will react. What are your thoughts on these market movements? Feel free to share this article with your friends and sign up for the Daily Briefing, which is available every day at 6pm.
