Even as cracks have emerged in Trump's fiscal policy, as well as the overall market, on rising geopolitical concerns, the S&P remains surprisingly resilient, and as JPM's Adam Crisafulli writes in his mid-day recap, "the SPX is stuck in purgatory and hasn’t moved in the last ~1.5 months."
What could change that? According to the JPM strategist, two things could lead to a breakout either higher or lower: a clearing of the "nominal growth clouds" and "the SPX vs. TSY gap is resolved."
So until either or both take place, JPM believes that "domestic equities will likely continue trading in a sideways/sluggish fashion. The one upside over the last 1-2 weeks are diminishing political expectations (which means there isn’t a big Trump/Ryan premium left although this makes eco data that much more important)."
Key excerpt below:
J.P. Morgan Intraday Trader
Market update – on the surface there’s nothing major happening. Headlines, attendance, and liquidity are all thin. All the major indices are trading lower but this has to be placed in context of the late-day Tues rebound rally (the SPX is still off the Tues lows and the big question isn’t why stocks are so weak today but instead why they were so strong yesterday afternoon). There wasn’t any major news out overnight on any of the big macro topics (nominal growth, Trump/Ryan pro-growth agenda, and geopolitical tensions).
TSYs aren’t doing much but have rallied meaningfully in the last few days (the SPX and 10yr yields are still telling a very different story on the landscape and investors are waiting for a resolution to the discrepancy).
The bigger picture backdrop remains unchanged – the SPX is stuck in purgatory and hasn’t moved in the last ~1.5 months. Until the nominal growth clouds clear (and the SPX vs. TSY gap is resolved) domestic equities will likely continue trading in a sideways/sluggish fashion.
The one upside over the last 1-2 weeks are diminishing political expectations (which means there isn’t a big Trump/Ryan premium left although this makes eco data that much more important).
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US equity sector trends – the main laggard groups include banks (esp. regional banks), semis, cap goods, steel/materials, and transports while outperformers include staples, energy, utilities, and telecoms. The SOX has been very heavy all week – very crowded positioning, very bullish sentiment, worries about AVGO bidding for the Toshiba semi biz, worries about QCOM’s IP income stream, some auto concerns, etc., are all weighing on the group.
Note that PC-linked stocks are doing decently thanks to the solid IDC/Gartner Q1 PC volume figures out overnight (HPQ, INTC, etc). Banks are seeing pressure and this seems to be catch-up weakness given the enormous TSY rally on Tues (the BKX ended Tues flat despite the big TSY rally). Heavy iron ore pricing is weighing on the capital good/steel complex.
Also FAST is very weak after reporting (even though Mar sales were solid). The iron ore headlines are hitting steel stocks very hard (X, AKS, etc.). Traditional brick-and-mortar retail continues to hold in well – KSS, GPS, ROST, and M are mild outperformers (while TSCO gets hit on its profit warning). Within staples PEP is rallying on an upgrade this morning.