Markets Experience Buying Frenzy Amid Poor Economic Data and Stock Bonanza

Contrasting Times in the Market

This week saw the markets take on a Dickensian twist. Despite poor economic data, stocks experienced a surge, creating a scenario where it was simultaneously the worst and best of times.

US Macro Surprise Index in the Red

The US Macro Surprise Index continued its disappointing plunge into the red, marking its weakest point since February 2023. This was not aided by today's missed payroll figures.

Growth Data Plunges Amid Soaring Inflation

As growth data took a nosedive, inflation data soared. However, the market seemed to focus on Powell's big taper and the buyback bonanza from AAPL and others. Today's NFP Goldilocks results, which fell short of expectations, helped to alleviate inflation fears due to wage softness.

Small Caps Lead Amid Short-Squeeze

Small Caps led the pack, spurred by a significant short-squeeze. Meanwhile, the S&P lagged behind, but still ended the week in the green. All major indices rallied up to their 50DMAs but failed to break out.

Nasdaq Performance and 'Most Shorted' Stocks

The Nasdaq performed well, with MAG7 stocks exhibiting volatility but overall pushing back towards record highs. 'Most Shorted' stocks experienced the biggest squeeze in two months, marking the most significant two-week squeeze since January 2023.

Utes Outperform and Bonds Bid

Utes notably outperformed, while energy lagged behind, as the 'Next AI Trade' goes mainstream. Financials ended the week in the red. Bonds were also bid all week, with yields down 12-20bps as the short-end outperformed.

Dollar Drops and Gold Prices Lower

The dollar experienced a drop this week, erasing almost all of the post-CPI gains. Gold prices were also lower for the second week in a row, despite the weak dollar and the Fed's 'easing'.

Bitcoin and Oil Prices

Bitcoin, despite a reasonable bounce back today, was down on the week, testing back up to $62,000 after a rough week of aggregate net outflows from BTC ETFs. Oil prices also plunged this week, marking the worst in three months and nearing two-month lows.

Rate-Cut Expectations Surge

Rate-cut expectations have surged this week, with 2024 now pricing in two full cuts and 2025 three more cuts. This begs the question, is this what Powell intended? To ease financial conditions again?

Conclusion

With the market's Dickensian twist, it's clear that the dynamics are ever-changing. What are your thoughts on the current state of the markets? Share this article with your friends to get their insights. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.