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AS MARKET STALLS, IT ATTEMPTS TO BROADEN

QUARTER-END POSITIONING UNDERWAY!

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RUSSELL 2000 ATTRACTING QUARTER-END "WINDOW DRESSING" INTEREST

EQUITY ETF: Long iShares Russell 2000 ETF (IWM):

Nasdaq lagged again on Wednesday (re-balancing) however Small Caps face-ripped higher on the day?



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1 - SITUATIONAL ANALYSIS

END OF QUARTER & A NERVOUS LONG WEEKEND

2023 was a market that spent most of the year searching for a bear narrative and waiting for something to break. Nothing did. 2024 in contrast is a year where everyone is making money, but seemingly being held back in gross (until recently) as they feel anxious around market levels or there being a wobble at some point.

We went from hard landing base case….to soft landing base case….to now arguably a…’who said anything about landing ever’…possible case. In a world where momentum rules, all news is getting compartmentalized and parked (China slowdown, SVB/First republic, Russia, Middle east etc. etc.)…then maybe the direction of travel…remains the direction of travel?

QUARTER END ADJUSTMENTS (Chart Right)

Goldman Sachs estimates $32 billion of US equities to sell from US pensions. UBS estimates around $50bn of selling from US pension selling. This is the largest rebalance going back to June 2023. It is being offset somewhat by a giant short squeeze - which is measuring the biggest low-to-high rip for 'most shorted' stocks since the end of February.

Trader Quote: "the water is warm….it probably shouldn’t be this easy…and rarely stays that way for long….but for now everyone is jumping in"

CHART ABOVE: Only 10 times since 1928 has the S&P gone for longer without a 2%+ daily decline...but we have seen much more extreme readings. 

CORPORATE STOCK BUYBACKS - Q1 EARNINGS "BLACKOUT WINDOW"

• Are now in their Q1 Earnings blackout period which means 30% less buying from the biggest buyer of equities.
• The buyback bid is fading by the day.
• Estimates according to Goldman Sachs: "We currently estimate ~87% of the S&P 500 are in blackout today with ~93% in blackout by the end of the week. We expect the blackout window will run through 4/26".

2- FUNDAMENTALS

The Fed is delaying rate cuts due to strengthening economic indicators, despite attributing a recent inflation increase to seasonality.



• Numerous data points have shown growth improvement since mid-last year, with a Leading Indicator turning positive in February.
• The market interprets rising interest rates as a sign of growth, and the nearly 100 basis point adjustment in the January 2025 funds rate market pricing has positively impacted markets, contrasting with the negative effects seen last fall.
• Growth is becoming a more important driver than monetary policy/inflation.
• S&P500 ex-Nasdaq-100 stocks showed a -10% EPS growth in 2023 but is expected to flip to +8% growth in 2024.

The growth is seen in the Mag-7 (chart below)

WORRIES IN THE JAPANESE CARRY TRADE

152 is the weakest for the yen against the dollar since 1990... and is the same level that prompted intervention in 2022. It may not look like much but that level is make or break and Tokyo knows it. "I do not consider a 4% move in a span of 2 weeks a mild move." (Japan's top currency diplomat Kanda).

CREDIT MARKETS

Since Credit always leads markets, we are watching it closely. This includes:

1. Inverted yield curves,
2. Negative swap spreads,
3. Collateral shortages,
4. Tightening of credit standards by banks and
5. Reduced commercial lending.
6. The High Yield Corporate "JNK" Market.(BELOW)

THE HIGH YIELD CORPORATE "JNK" MARKET

It appears that the Credit Markets are approaching the conclusion of their major corrective consolidation. Appears likely to be complete over the next 90 days.

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3 - TECHNICAL ANALYSIS

THE MAGNIFICENT 7

• We have reached the vertical lift part of the parabolic (geometric) lift shown by the dashed red line.
• We have Divergence with momentum (bottom pane),
• Momentum appears to be rolling over (bottom pane)

MATASII CROSS: WEEKLY - CONTINUES TO SIGNAL A MAG-7 BUY

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US EQUITY MARKETS

CONTROL PACKAGE

There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a "control set".

1. The S&P 500 (CHART LINK)
2. The DJIA (CHART LINK)
3. The Russell 2000 through the IWM ETF (CHART LINK),
4. The MAGNIFICENT SEVEN (CHART ABOVE WITH MATASII CROSS - LINK)
5. Nvidia (NVDA) (CHART LINK)

S&P 500 CFD

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S&P 500 - Daily - Our Though Experiment

Our Though Experiment, which we have discussed previously, suggests we have put in a near term top (or very close to it) and will now consolidate before possibly completing one final small impulse higher or put in a 1-2 Wave of a much higher degree.

NOTE: To reiterate what I previously wrote - "the black labeled activity shown below, between now and July, looks like a "Killing Field" where the algos take Day Traders, "Dip Buyers", "Gamma Guys" and FOMO's all out on stretchers!"

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STOCK MONITOR: What We Spotted

MONDAY

• Stocks were ultimately red on Monday, although well off the morning lows.
• The RUT closed green on account of energy sector outperformance with crude prices rising.
• Lows were seen in the futures pre-market with tech downside leading on several key reports, chip names AMD and INTC were initially hit on China phasing out US microprocessors from government PCs and servers.
• Nvidia was lower pre-market after GOOG, INTC and QCOM announced they were planning to battle NVDA's dominance in AI.
• Meanwhile, the EU is also opening investigations into big tech names.
• Nonetheless, a lot of these stocks pared earlier weakness which helped the Nasdaq recover to finish only slightly lower.
• Treasuries were lower across the curve ahead of supply this week as well as some key data & Fed speakers, including Waller on Wednesday, while Powell speaks on Good Friday, after the PCE data.
• There was a slew of Fed speakers, Bostic after-hours on Friday was hawkish noting he now only sees one cut this year (prev. two), while Goolsbee echoed Powell by noting the inflation reports do not change the overall picture.
• Cook stuck to the script, noting risks between meeting the dual mandate are coming back into better balance.
• Data saw US existing home sales marginally miss expectations while the US 2yr treasury auction was in line with recent averages.
• In FX, the Dollar was sold while Yuan was bid after a firmer PBoC fixing overnight and on reports of State-owned banks selling Dollars after the notable weakness seen at the tail end of last week.
• The Aussie also prospered on the Yuan strength while the Yen was ultimately flat despite officials jawboning overnight;
• Japan's top currency diplomat Kanda says have been closely watching FX moves with a high sense of urgency and will take appropriate steps to respond to excessive weakness of yen without excluding any measures.
• Crude prices were bid on rising geopolitical tensions after the Moscow terrorist attack and also on supply updates after Reuters reported that Russia has told oil companies to cut output to 9mln BPD by the end of June, in line with OPEC+ pledges.

INFLATION BREAKEVENS: 5yr BEI -0.4bps at 2.393%, 10yr BEI -0.8bps at 2.347%, 30yr BEI -1.7bps at 2.281%

REAL RATES: 10Y -- 1.9087%

STOCK SPECIFIC

• Boeing (BA) +1.5%: CEO Calhoun intends to step down at end-2024. CEO said hopefully they will see a deal soon with Spirit AeroSystems (SPR) +1.3%.
• Apple (AAPL) -1%: Ended its project to develop micro LED displays.
• Intel (INTC) -1.5% AMD (AMD) -0.5%: China implements new guidelines to phase out US microprocessors like Intel and AMD from government PCs and servers.
• United Airlines (UAL) -3.5%: US aviation regulators mull severe measures to limit United Airlines' expansion.
• Nvidia (NVDA) +1%: Google (GOOGL), Intel (INTC), Qualcomm (QCOM) execs say they plan to battle Nvidia AI dominance through the UXL Foundation.
• Regeneron (REGN) -0.5%: US FDA declines to approve Cos. blood cancer therapy.
• Vista Outdoor (VSTO) +3%: MNC Capital has reportedly lifted its bid for the Co. to USD 37.50/shr (prev. USD 35/shr) or USD 3bln, according to the New York Times.
• Masimo (MASI) +3.5%: To evaluate a spin-off of its consumer business.
• Cleveland-Cliffs (CLF) +1%: To receive up to USD 575mln in DoE investments.
• Foot Locker (FL) +6%: Upgraded at Evercore after meeting with the Cos. management team last week.
• Lucid (LCID) +5.5%: Saudi PIF affiliate Ayar has agreed to buy USD 1.0bln of newly created series of convertible preferred stock of Lucid.

TUESDAY

• Stocks ultimately finished the session in the red with a late session sell off, which saw sectors primarily in negative territory with only Health Care, Financials and Consumer Staples in the green.
• Utilities, Energy and Tech underperformed.
• T-Notes were choppy with initial weakness seen in response to the stronger than expected Durable Goods data before a gradual reversal into settlement, aided by a strong 5yr auction.
• Crude prices slid lower with ongoing geopolitics in the limelight ahead of OPEC JMMC next week, although sources on Tuesday suggested no change to policy.
• In FX, the Dollar was flat despite a hefty bid into the London fix as we approach month/quarter end while the Swissy was the G10 laggard with little action seen elsewhere. Bitcoin was sold and gold saw slight upside.

INFLATION BREAKEVENS: 5yr BEI -2.8bps at 2.362%, 10yr BEI -1.8bps at 2.328%, 30yr BEI -0.8bps at 2.273%

REAL RATES: 10Y -- 1.9137%

STOCK SPECIFIC

• Apple (AAPL) -0.5%: China iPhone shipments fell about 33% in February, but it was previously flagged it would be affected by the later timing of the Lunar New Year. Note, earlier it was reported shipments of total smartphones within China -31.3% Y/Y
• Krispy Kreme (DNUT) +39.5%: McDonalds (MCD) is to sell Krispy Kreme donuts in their US restaurants.
• McCormick & Company (MKC) +10.5%: EPS and revenue beat while it reaffirmed the FY24 outlook.
• Dell Technologies (DELL) +1.5%: Said despite near-term challenges, expects demand environment to improve in fiscal 2025 enabling net revenue growth for full fiscal year.
• Baidu (BIDU) -2%: Some sources deny Apple & Baidu have reached an AI cooperation deal, according to AppleInsider citing Chinese media.
• Viking Therapeutics (VKTX) +17%: Positive results from Phase 1 clinical trial of oral tablet formulation of dual GLP-1/GIP receptor agonist VK2735; Phase 2 trial in obesity planned for H2 '24.
• Seagate (STX) +7.5%: Upgraded at Morgan Stanley
• Spotify (SPOT) +0.5%: Added to BofA Securities US 1 list, replacing Netflix (NFLX).
• Tesla (TSLA) +3%: Offers one-month trials for its Full Self-Driving (FSD) to US customers. In other news, Il Sole 24 Ore reports officials at Italy's Industry Ministry have contacted Tesla about possibly producing electric trucks in the country.
• Ford (F) -3.5%: CFO says Baltimore Bridge collapse is to affect supply chain; Co. is looking to re-route car parts to other east coast ports.
• Shockwave Medical (SWAV) +10%: Johnson & Johnson (JNJ) considering deal for SWAV, according to WSJ; adds a deal could be finalized in the coming weeks, assuming talks don’t fall apart, and it is also possible another suitor could emerge.
• Trump Media (DJT) +16%: Shares surged in its first trading day on the Nasdaq.

WEDNESDAY

• Stocks were firmer on Wednesday thanks to a late session rip into the close with month-end selling not as large as expected, perhaps indicative of the bulk of it being in the rearview now ahead of the long weekend.
• There was no tier one data or major catalysts to set the tone ahead of Fed's Waller later at the Economic Club of NY on Wednesday at 18:00ET.
• Treasuries rallied further, ultimately in a bull-flattener in thin trade, where the strong 7yr auction marked the low in yields for the session.
• The Dollar Index was flat, while the Yen closed marginally firmer after more Japanese official commentary/actions that are believed to preface FX intervention.
• Euro was flat, despite some strong gains in EGBs, coming on the heels of the as-expected rise in headline Spanish CPI, and a softer core reading, ahead of other EU member state figures due next week.
• Gold was ultimately firmer, aided by the lower yields, but did see some notable weakness earlier on Reuters reports India had slashed its gold imports for the latest month by 90% amid high prices.
• Oil prices were lower, albeit closed off worst levels, amid bearish US inventory figures in a holiday-thinning trading environment.

INFLATION BREAKEVENS: 5yr BEI -2.1bps at 2.351%, 10yr BEI -1.8bps at 2.320%, 30yr BEI -1.1bps at 2.270%

REAL RATES: 10Y -- 1.8382%

STOCK SPECIFIC

• Novocure (NVCR) +12%: METIS Phase 3 clinical trial met primary endpoint in NSCLC study.
• nCino (NCNO) +19%: EPS beat, with Q1 and FY25 outlook surpassing expectations.
• Marvell (MRVL) +6%: Citi opens a 'positive catalyst watch' on Marvell into AI event.
• GameStop (GME) -15%: Top and bottom-line light and said it has recently undertaken cost reduction measures to improve efficiency, including initiatives to reduce headcount.
• NIO (NIO) -2.5%: Cuts Q1 delivery view to about 30k (prev. 31-33k) vehicles in Q1'24.
• Merck (MRK) +5%: FDA approved Co.'s life-threatening lung condition treatment for use among adults with pulmonary arterial hypertension.
• Cintas (CTAS) +8%: EPS, revenue, and gross margin beat alongside lifting FY outlook.
• Coinbase (COIN) -4%: Downside attributed to court update that the Coinbase case has not been dismissed; Court denies COIN motion for judgement.
• Robinhood (HOOD) +4%: Introduced its Robinhood Gold Card, a credit card where cash back can be deposited into a brokerage account.
• Trump Media & Technology Group (DJT) +14%: Shares of former President Trump’s social media firm soared, adding to their strong gains from their debut under the DJT ticker on Tuesday.
• Regional Banks: S&P said some US regional banks could see asset quality and performance hit by stresses in commercial real estate. Accordingly, the credit rating agency lowered its outlook on five lenders to negative from stable. Those five were: First Commonwealth Financial (FCF), M&T Bank (MTB), Synovus Financial (SNV), Trustmark (TRMK) and Valley National Bancorp (VLY).

BOND MARKET

CONTROL PACKAGE

There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a "control set".

1. The 10Y TREASURY NOTE YIELD - TNX - HOURLY (CHART LINK)
2. The 10Y TREASURY NOTE YIELD - TNX - DAILY (CHART LINK)
3. The 10Y TREASURY NOTE YIELD - TNX - WEEKLY (CHART LINK)
4. The 30Y TREASURY BOND YIELD - TNX - WEEKLY (CHART LINK)
5. REAL RATES (CHART LINK)

FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% +REAL % = 2.320% + 1.838% = 4.158%

As rate-cut expectations fell from 6 this year to 3, Treasury yields rose... non-stop... all week with the belly of the curve underperforming (5Y yields up 28bps on the week). Yields all ended back up near their year-to-date highs...

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