U.S. Futures & World Markets

Stocks are inching higher premarket as oil prices and Treasury yields drip modestly lower. The market is in a "hopeful" mood following comments from JD Vance and reports that Chinese and Indian ships are crossing the Strait of Hormuz. It's a light day for economic data, but Nvidia reports earnings after the closing bell tonight — so semiconductor stocks will be in the spotlight.

Earnings have been broadly encouraging. Toll Brothers is particularly interesting as the homebuilder is a good read-through on the higher-end consumer. The beat-and-raise from TOL was impressive given ongoing housing headwinds — demand at the upper end of the market remains healthier than many expected.

There's also a good chart below on the upcoming wave of IPO issuance and its possible impact on the broader market. If someone wants to make a large allocation to something like a SpaceX IPO, that capital has to come from somewhere. Money isn't created out of thin air, and the rest of the market can feel the pressure as funds get reallocated. Will these IPOs suck the oxygen out of the room?

S&P Futures vs. Fair Value: +18.00  |  10-Year Yield: 4.64%

CORE Headlines

Charts & Data

Hormuz traffic doubling. Lloyd's List via Daily Chartbook: "According to Lloyd's List Intelligence vessel-tracking data, at least 54 ships transited through the Strait of Hormuz between May 11 and 17, compared to just 25 in the previous week." The reopening trade is beginning to price in.

Oil and rates: two dimensions at work. 3Fourteen Research via Daily Chartbook: "Early in the war, rates moved with the price of oil in a linear way — oil up = fewer cuts. Oil is now below where it was in late April, but rate cut pricing has drifted further out of the market. Translation: There are two dimensions at work — price level and duration." The market has gone from pricing oil as a transitory shock to pricing it as a permanent regime shift.

Investors most underweight bonds since June 2022. BofA via Daily Chartbook: "Investors are the most underweight bonds since June 2022." That's a classic contra-indicator for bonds — when everyone is short, the pain trade is higher bond prices (lower yields).

Global bond yields breaking out — even Japan. John Authers, Bloomberg via Daily Chartbook: "Across the developed markets, bond markets are staging a slow-motion car wreck. Even Japan is joining in now, and the phenomenon is truly global." A synchronized rise in global yields is a different animal than a US-specific move.

Rising yields and strong equity returns can coexist. @bluekurtic via Daily Chartbook: "The correlation between US 30-year Treasuries and the S&P 500 has been at this level for most of the 1990s — a period of strong equity returns. With equities still near highs, rising yields may reflect adjustment to a higher inflation regime, not necessarily equity stress."

The 50bps yield move rule. Ben Snider, Goldman Sachs via Daily Chartbook: "Short-term S&P 500 returns turn negative when the 10-year Treasury yield moves by 2 standard deviations over one month. A 2-standard-deviation move is currently about 50 basis points." Worth watching as yields creep higher.

Excess liquidity declining — more challenging backdrop ahead. Simon White, Bloomberg via Daily Chartbook: "Excess liquidity has started to decline again. Although it is not yet negative, it already indicates a more challenging backdrop for equities in the coming months — and it's set to get worse as the rise in global inflation eats away at it."

Fund managers back in US stocks — is the global rotation over? BofA via Daily Chartbook: "Fund managers overweight US stocks again. Is the global vs. US rotation over?" After a brief flirtation with international diversification, the herd is back.

S&P has only peaked in May once in 46 years. Jessica Rabe, DataTrek Research: "Have US large-cap equities peaked for the year? That would be extremely unusual — it has only happened once in May over the last 46 years." Seasonality remains a tailwind.

Financials positioning at 7th percentile — deeply under-owned. Deutsche Bank via Daily Chartbook: "Positioning in Financials is still extremely light, sitting in the 7th percentile and leaving ample room to build exposure. That caution looks increasingly misplaced given the fundamentals." The most under-owned major sector in the market.

Corporate buybacks ~$5B per day — blackout begins June 15. Scott Rubner, Citadel via Daily Chartbook: "We estimate corporate demand at roughly $5 billion per day during the open window, making buybacks one of the largest structural sources of equity demand today. The next blackout window begins around June 15th." A meaningful tailwind that will fade in less than a month.

IPO supply could absorb market liquidity. Rich Privorotsky, Goldman Sachs via Daily Chartbook: "Feels like we're going to be talking a lot more about supply into summer. GIR has suggested IPO issuance could approach $160 billion this year. Typically the lead-up performance into large issuance windows is challenging — not necessarily catastrophic, but liquidity does get absorbed." SpaceX, OpenAI, and others are coming.

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