June 24, 2024 | Quarter-End Rebalancing

MARKETS

S&P 500: Up +18 points to 5482, VIX: 13.29

Asia: Japan +0.54%, China -1.17%, Hong Kong unch

Europe: Euro Stoxx 50 +0.95%, FTSE +0.7%, DAX +0.97%

FX: USD (DXY) down 0.27%, EUR up 0.34%, GBP up 0.36%, JPY up 0.08%, CNY up 0.03%

Energy: WTI Crude up 0.90% to $81.45, Brent up 0.74% to $85.85

Cross markets: Terminal rate unch at 5.33, Implied rate cuts 2-years from terminal unch at 153bp, 5/10 yield spread -2bp

Treasuries: 2-year yields up ~1bp at 4.743%, 10-year yields up ~1bp at 4.265%, 30-year yields up ~1bp at 4.404%

WHAT WE'RE THINKING

Snapshot: US equities are mostly higher after coming under light selling pressure late last week.??Cyclical-value groups catch a bid this morning with the equal weight S&P 500 (SPW) and Russell 2000 (RTY) outperforming the cap-weighted indices.??Energy is the upside standout by sector with SLB and APA on top of the S&P 500 (SPX) performance list.??Financials are close behind with regional banks lifting from oversold levels, while Tech lags as portfolio concentration issues weigh on semis and AI beneficiaries into quarter-end. RMD is the worst performing stock in the SPX after full results from LLY’s sleep apnea trial support its addition to tirzepatide’s (GLP-1) label. Treasury yields are a touch higher across the curve, while the Dollar Index is lower into Friday’s core PCE report.??Gold is higher as dollar strength fades and WTI extends recent gains to $81.50/bbl.??

• Improved market breadth is the big unwritten story as quarter-end rebalancing dynamics favor near-term continuation (more below).??
• The June Dallas Fed Index missed consensus but still improved MoM.??
• May core PCE inflation due on Friday is this week’s macro focus with consensus looking for +0.1% MoM and +2.6% YoY, down from +0.25% and +2.75% last month.??
• Chicago Fed President Goolsbee and Governor Waller add nothing incremental to the monetary conversation this morning with SF President Daly scheduled to speak this afternoon.??
• US fiscal policy gets more media attention after last week’s CBO forecast signaled extreme imbalances and a need to increase T-bill issuance later this year.??Treasury supply is also top of mind this morning into 2, 5 and 7-year note auctions.??
• Minutes from the June BOJ meeting reveal a long debate over a potential near-term rate hike, which keeps the action on the July agenda.??And China’s Ministry of Commerce reported another steep drop in Foreign Direct Investment (FDI) in May.

Breadth: Quarter-end pension fund rebalancing began late last week and should continue for the next 2/3 days.??Rebalancing dynamics this month favor fixed income with estimated equity outflows as high as $50B.??The rebalancing dynamic is also leading to improved market breadth as the QTD rally in semis and AI beneficiaries triggers portfolio concentration issues with some long-only managers.??The durability of the improved market breadth will be tested when portfolio managers conclude their rebalancing efforts.??Early last week, we called attention to weak breadth/narrow leadership and how it makes the SPX more vulnerable to macro shocks and even stock-specific disappointments.??Recent improvement in market breadth is a welcome development but the connection to rebalancing flows makes us skeptical about it lasting beyond this week.??The cyclically-sensitive Russell 2000 (RTY) is the index to watch with an unlikely break above ~2140 as the all-clear signal for broad equity participation.

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Next: In addition to core PCE data this Friday, markets will be focused on earnings reports from MU and NKE.??MU’s earnings report on Wednesday will be critical update for the AI theme and semis, while NKE’s release on Thursday will provide an important update on global consumption.

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SPX: The bullish fundamental theme of above-trend GDP growth, positive EPS estimate revisions and a paused Fed remains largely intact for now.??And the SPX keeps its bullish technical trend at levels above 5290.?

FACT OF THE DAY

Bassist Jane Little performed with the Atlanta Symphony Orchestra for more than 71 years.??She joined the symphony in 1945, when she was just 16 and died onstage at age 87 while playing ‘There’s No Business Like Show Business.’?

JSC IN THE MEDIA

Fox Business News: Andrew joins Charles Payne on Making Money to discuss risks to the soft landing scenario and factors necessary to sustain the current bull market. Watch Video

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Arm Holdings (ARM) is Not a Beneficiary of A.I. Right Now: Although ARM fell following underwhelming F25 revenue guidance, Andrew highlights how the company is on track to ultimately benefit from increased demand for accelerated compute and A.I. workloads. Watch Video

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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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See more of JSC in the Media.

THIS DAY IN HISTORY

June 24, 1922: The American Professional Football Conference, which had been formed in 1920, becomes the National Football League (NFL).

CATALYST CALENDAR

Tomorrow: 1) Hong Kong’s import/exports for May; 2) US housing prices for April; 3) Conference Board confidence index for June; 4) Australia’s CPI for May 5) Earnings before the open: CCL, SNX; 6) Earnings after the close: FDX, PRGS

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Wednesday: 1) US new home sales for May; 2) Publication of the Fed’s stress test results; 3) Japan’s retail sales for May; 4) China industrial profits for May; 5) Earnings before the open: GIS, PAYX, UNF; 6) Earnings after the close: AVAV, CNXC, FUL, JEF, MLKN, MU, WS

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Thursday: 1) Riksbank decision; 2) Eurozone M3 money supply for May; 3) US Q1 GDP revisions; 4) US durable/capital goods for May; 5) US jobless claims; 6) US wholesale/retail inventories for May; 7) US pending home sales for May; 8) The Biden/Trump debate; 9) South Korea’s industrial production for May; 10) Japan’s industrial production for May; 11) Japan’s Tokyo CPI for June; 12) Earnings before the open: AYI, LNN, MKC, SMPL, WBA; 13) Earnings after the close: NKE

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Friday: 1) US PCE for May; 2) US personal income/spending for May; 3) ECB inflation expectations report for May; 4) Chicago PMI for June; 5) Final Michigan sentiment report for June

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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