April 30, 204 | SPX Levels

MARKETS

S&P 500: Down -47 points to 5069, VIX: 15.30

Asia: Japan +1.24%, China -0.26%, Hong Kong +0.09%

Europe: Euro Stoxx 50 -0.69%, FTSE +0.31%, DAX -0.57%

FX: USD (DXY) up 0.46%, EUR down 0.21%, GBP down 0.28%, JPY down 0.64%, CNY down 0.17%

Energy: WTI Crude down 1.26% to $81.59, Brent down 0.77% to $87.82

Cross markets: Terminal rate unch at 5.33, Implied rate cuts 2-years from terminal up ~3bp at 118bp, 5/10 yield spread -3bp

Treasuries: 2-year yields up ~4bp at 5.016%, 10-year yields up ~5bp at 4.667%, 30-year yields up ~4bp at 4.774%

WHAT WE'RE THINKING

Snapshot: US equities?are broadly lower after a hot Q1 inflation print.??All sectors retreat with the exception of Health Care that benefits from post-earnings upside in LLY.??A number of other companies including TT, GLW, LDOS, MMM, PYPL and ZBRA enjoy earnings-driven upside, while EAT, QSR and MCD rally as DPZ extends gains from yesterday. AAPL is higher into Thursday’s earnings report and META rebounds from last week’s sell-off. There’s no shortage of earnings-related disappointments with GEHC leading the S&P 500 (SPX) lower after a Q1 revenue miss. Rate sensitive groups, bond proxies and cyclically-exposed sectors are heaviest.??Treasury yields are higher across the curve with 2-year yields threatening to break above 5%. The Dollar Index is higher with the yen resuming its weakening trend after yesterday’s speculated intervention. Commodities are mostly lower on concerns for a hawkish Fed meeting tomorrow.??Intraday levels in copper suggest a possible reversal after gaining ~25% over the last two months.??

• The Q1 Employment Cost Index (ECI) came in hotter-than-expected at +1.2% q/q vs. consensus for +1%. Private industry workers compensation rose +1.1% while pay for state/local workers rose +1.3%. The data is backward looking but mixes with a downbeat consumer confidence report to stir stagflation worries.?
• April consumer confidence came in at 97, below consensus for 104 and lower for a third straight month. The expectations sub-index fell 7.6 points to 66.4 as consumers expressed concerns for jobs, business conditions and income.??
• April Chicago PMI also missed, while February FHFA?and?Case-Shiller house-price indices were stronger than forecasts.??
• Overseas data included an inline Eurozone headline CPI?but slightly firmer core reading with expectations for a June ECB rate cut remaining unchanged.?
• China manufacturing and services PMI decelerated MoM but remained in expansion territory.??
• Overnight results from Samsung provided the latest bullish AI data point after management raised its HBM forecast. Shares of NXPI are higher after guidance points to stabilization and becomes the latest industrial semiconductor report to suggest a Q1 trough. Other notable earnings-related outperformers include CCK, ECL and ST, while shares of ADM, APD, FFIV, HUBB, MPC, PCAR and SBAC are lower after disappointing/underwhelming results.??Afternoon earnings highlights include AMD, AMZN, CZR, MDLZ, PINS, SBUX, SMCI, SWKS and WERN.

Chartist: The SPX touched its rising 50-day moving average near 5126 yesterday before reversing to close slightly below that level.??Moving averages are popular buy/sell triggers for CTAs and other systematic strategies with the 4/15 break below the 50-day average (then 5118) leading to accelerated downside.??Most CTA strategies are trend-following, which means they add long exposure in rising markets and add short exposure in down markets.??The five-month-long rally from November has left CTA long positioning near record levels.??We remain ‘tactically bearish’ until the index can sustain closing levels above its 50-day average now at 5126 and make note of the rising 100-day moving average currently at 4970. In our opinion, a break below the 100-day moving average could bring longer-term support at ~4800 into view.? ?

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Volatility: The CBOE Volatility Index (VIX) remains at subdued levels below 20.??Upside breaks above 20 will create a headwind for equity rallies with higher levels likely to erode the current 21x forward SPX multiple.?

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SPX: The current ~5% pullback in the SPX from the late March peak was driven by rising bond yields.??Equities can usually tolerate a slow and steady backup in yields but become vulnerable when a 2 standard deviation yield backup occurs within a ~30 day window.??In the current environment, a 2 standard deviation event for 10-year yields is worth ~40bp, which is what happened during the month of April.??The ~5% pullback in the SPX also matches the historical average when these events occur.

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Bond yields: Ten year yields currently sit at 4.66% with last Friday’s reversal from 4.73% generating a high-frequency momentum divergence signal.??Almost all significant turning points include momentum divergence, but many momentum divergences only generate small moves.??What we can say is that 10-year yields have flashed an encouraging sign with a break below 4.46% suggesting a more lasting trend.??Tomorrow’s Fed meeting/Treasury refunding and Friday’s April Jobs Report could be important catalysts.?

FACT OF THE DAY

New Atlantis?was a?micronation?formed by Leicester Hemingway, the brother of Ernest Hemingway. The ‘island,’ a 240 sq ft bamboo raft off the coast of Jamaica, was established as a constitutional republic on July 4, 1964. Pictured below with children and second wife Doris Mae who regrets not listening to her father.?

JSC IN THE MEDIA

Macro Outlook and Mega Cap Tech: Andrew Graham joins Oliver Renick to discuss the outlook for mega cap tech and inflation, as well as Alphabet (GOOGL) and the A.I. race. Watch Video

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Adobe Plunges After Earnings: Andrew Graham and Keith Kirkpatrick join the Watchlist to discuss the outlook for Adobe. Although there are challenges in the near-term, Adobe may benefit from the adoption of generative AI over the longer term.??Watch Video?

What do Advisors see for 2024? Speaking as one of five featured advisors on Barron’s Advisor Q&A, Andrew explores why we’d see a pull-back to start the year and predicts small-cap stocks will outperform large-caps for the year. Read on Barron’s

See more of JSC in the Media.

THIS DAY IN HISTORY

April 30th, 1952: Mr. Potato Head becomes the first toy advertised on television. It was also the first TV advertisement targeted for children. The ad campaign was successful, with over one million sets sold in the first year. In its original form, Mr. Potato Head was offered as separate plastic parts (facial features) with pushpins to be affixed to a real potato or other vegetable. The plastic body wasn’t introduced until 1964.

CATALYST CALENDAR

Tomorrow: 1) ADP jobs report for April; 2) US JOLTs report for March; 3) Manufacturing ISM for April; 4) US auto sales for April; 5) The FOMC decision; 6) South Korea’s CPI for April; 7) Earnings before the open: ADP, ARCC, AVT, AXTA, CDW, CENX, CG, CHEF, CLH, COR, CRS, CVS, DAY, DD, EL, ENTG, FLEX, GNRC, GPN, GRMN, IDXX, JCI, KHC, KKR, MA, MAR, NCLH, PFE, SMG, VRSK, WEC, WING, WOLF, YUM; 8) Earnings after the close: AFL, AIG, ALB, ALL, ANSS, APA, ATUS, AWK, CF, CHRW, CSGS, CTSH, CTVA, CVNA, CWH, DASH, DVN, EBAY, ETSY, FSLR, FSLY, HLF, HPP, HST, INFA, JAZZ, MAA, MET, MGM, MOS, MPWR, MRO, MUSA, NOVA, PAYC, PTC, PTEN, QCOM, QRVO, THG, UPWK, ZG

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Thursday: 1) Eurozone manufacturing PMI for April; 2) US trade balance for March; 3) Weekly jobless claims; 4) US Factory/capital goods orders for March; 5) Earnings before the open: AGCO, APO, APTV, ARES, BAX, BDC, BDX, BTU, BWA, CAH, CHD, CI, CMI, CNHI, CNK, COP, D, EXC, ICE, HWM, IQV, IRM, K, KIM, KTB, LIN, LNC, MCO, MRNA, MUR, OGN, PBF, PENN, PTON, PWR, REGN, SEE, SHAK, SO, SWK, VAL, VMC, W, WCC, XRAY, XYL, ZBH, ZTS; 6) Earnings after the close: AAPL, AES, AMGN, AWK, BECN, BILL, BKNG, CABO, COHU, COIN, DKNG, DLR, DVA, EOG, EXPE, FIVN, FND, FTNT, GDDY, HOLX, HUN, ILMN, IR, LYV, MSI, MTZ, NET, PXD, REG, RKT, SPXC, SQ, TNDM, TXRH, WW, X

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Friday: 1) US jobs report for April 2) Hong Kong’s retail sales for March; 3) Eurozone unemployment rate for March; 4) Singapore’s retail sales for March; 5) US services ISM for April; 6) Earnings before the open: CBOE, CBRE, FLR, FUBO, GTLS, HSY, LNG, MGA, TRMB, XPO

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