U.S. Futures & World Markets

Stocks are flat premarket as the market digests recent gains and earnings season slows to a crawl. The market continues to look past geopolitical headlines, remaining focused on strong earnings growth and seemingly unlimited demand for AI computing power.

The equity rally continues to feed off itself. Buying begets more buying, with many investors still on the sidelines. See the chart below on hedge fund positioning as an example.

We're seeing the same dynamic play out in the options market, where a higher market forces dealers to chase upside exposure. Here is how Goldman Sachs framed it:

"The options market is effectively telling you sentiment has gone from 'hard landing / geopolitical shock / de-risk everything' in late March to 'growth re-acceleration / AI capex supercycle / vol suppression' in just over a month."

Goldman Sachs

It's also interesting to see consumer sentiment in the gutter while stocks hit all-time highs. As I said in my Market Outlook piece last month, it's more important to pay attention to what consumers are doing versus what they are saying in surveys. The wallet never lies.

S&P Futures vs. Fair Value: -7.00  |  10-Year Yield: 4.38%

CORE Headlines

Charts & Data

No rate cuts in sight. Nick Timiraos via Daily Chartbook: more sell-side firms and Fed watchers are removing or delaying cuts from their outlook. Half now see no cuts this year, and risks are clearly tilted toward that group continuing to grow given the inertial nature of these forecasts.

Cap-weight vs. equal-weight diverging. Callum Thomas via Daily Chartbook: "While the headline cap-weighted S&P 500 is up about 8% YTD and onto new highs, the equal-weighted version has lagged (still up ~6% YTD) and has sort of stalled at resistance. About 43% of stocks are tracking below their 200-day moving average." The index is masking underlying weakness.

Top 10 companies now capture 34% of S&P 500 profits. Torsten Slok, Apollo: "The share of S&P 500 profits captured by the 10 largest companies has doubled since 1996. The S&P 500 is not a diversified index anymore — it is dominated by a small number of extraordinarily profitable tech companies."

April NFP crushed expectations. Augur Infinity via Daily Chartbook: "US nonfarm payrolls rose 115,000 in April, well above the consensus of 62,000." A strong labor market print removes any urgency for the Fed to act.

Unemployment rate notably stable. Nick Timiraos via Daily Chartbook: "At 4.337% in April, the U.S. unemployment rate continues to exhibit notable stability. The recent high is 4.536% in November."

Wage growth ticking back up. Nick Timiraos via Daily Chartbook: "Average hourly earnings growth ticked up in April to around 3.6%, reversing a slowdown in March." Wage growth above 3.5% keeps the Fed cautious on cuts.

Consumer sentiment at fresh record low. Bloomberg via Daily Chartbook: "US consumer sentiment fell to a fresh record low on concerns about the impact of inflation on personal finances and buying conditions." Words vs. wallets — watch the spending data, not the surveys.

Retail investor flows accelerating. Scott Rubner, Citadel via Daily Chartbook: "Aggregate retail investor equity flows sharply accelerated in April. Net buying last week alone was in the 98th percentile of weekly flows since 2019. Monthly net flows for April clocked in at the 87th percentile." Everyone is joining the party.

Macro hedge funds short the market — forced to chase. Simon White, Bloomberg via Daily Chartbook: "Macro hedge funds appear to be short the stock market, leaving the possibility they have to chase the rally, driving prices higher in the short term." The bears are the fuel for the next leg.

S&P 500 six consecutive weekly gains at 5-year high — historically bullish. Turning Point Market Research via Daily Chartbook: "Whenever the S&P 500 advanced for six consecutive weeks and closed at a 5-year high, the benchmark index typically maintained its momentum over the following year."

Breadth needs to broaden for the next leg. Scott Rubner, Citadel via Daily Chartbook: "Beneath the surface, participation has been relatively limited. A rotation beyond the largest index constituents and Tech in general would likely be required to sustain the next leg higher."

SOX more than 50% above its 200-day — not a bubble signal yet. @bluekurtic via Daily Chartbook: "For the first time in 26 years, the Semiconductor Index is more than 50% above its 200-day moving average. But in 1999, SOX crossed the same threshold and still went on to double before the eventual peak in 2000."

AI concentration vs. railroads in 1881. Michael Hartnett, BofA via Daily Chartbook: "AI bubble watch: Railroads = 63% of US stocks in 1881. The 'AI 10' today = 40%." An interesting historical parallel worth keeping in mind.

Interesting Reads

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This content does not constitute legal, tax, accounting, or other professional expert advice. Everything published is believed to be reliable, but its accuracy or completeness is not assured. Past performance does not indicate future results. The opinions expressed herein are subject to change without notice and are solely those of the author as of the date indicated.