S&P500 - How Resilient Is It?!

Below is a transcript from Monday's Morning Market Hit video above.

Welcome to Shortview Trading. My name is Chris Watling. I'm the CEO and Chief Market Strategist of Longview Economics and Shortview Trading. This is your morning market hit for Monday, 10th of June. It's around 10 a.m. London time. So the question is, if you want to trade equity index futures, you want to trade S&P 500 futures, NASDAQ, FTSE, or DAX futures, what do you need to do? What do you need to think about? How should you go about doing that on a one to two week time frame? That's what we're going to dig into in this video.

The first thing you need to do is contextualize the recent price action. How are markets behaving? How are they reacting to news flow? In fact, there was pretty dramatic news flow over the weekend with the European election results and the President of France calling a snap election, with some dramatic openings of asset prices in Europe this morning. The CAC opening 2-2.5% lower, that's the main French market, European government bonds up a bit, particularly French ones, and the Euro weaker.

Interestingly though, US equity markets aren't that bothered by the news over the weekend. The S&P 500 futures are off 1.2%. A trivial movement really, given the context of what's happening in Europe. Not much response over in the States. And indeed, much more importantly, last week we saw the S&P 500 rally nicely throughout most of the week. We mentioned on this video last Monday that there was a key reversal on Friday, 31st of May. There was a bullish pattern, a bullish technical pattern suggesting the market should do well last week, and that's exactly what we saw. A strong S&P 500 throughout most of the week, with that strength driven primarily by the tech stocks, particularly the mega cap tech stocks. Nvidia up 10% last week, Google up 4% and Microsoft over 2% higher on the week. So the mega tech stocks, the Magnificent 7 or some of them, drove this market higher last week.

So looking at even broader sectors than the top level one GIC sectors, the main 11 S&P 500 sectors, we like to divide the market into three component parts: defensives, cyclicals, and long-duration growth stocks. And as you can see from this chart in front of you now, since the pullback into late April, the main action, the main upside driver of this market has been long-duration growth and cap tech. As I said, Nvidia up 10% last week alone. So tech's been driving this market. It was helped a little bit earlier in the week last week by falling bond yields. Bond yields came off quite nicely across the course of the week as market participants priced in expectations of lower growth. That played out on the back of the ISM manufacturing and other data we had out earlier in the week. And of course, get to Friday, that all reversed. The bonds reversed sharply, as you can see in this chart now, with the US 10-year yield backing up 15-16 basis points after the announcement of payrolls through to where we are now. So a very big reversal of what was earlier weakness in bonds last week. But interestingly, the S&P 500s remained resilient. So earlier in the week, it was helped by falling bond yields. Later in the week, it was pretty unperturbed by rising bond yields. That's a resilient market. That's interesting price action. That's got a message in it. And we take messages like that, assessing the price action, and couple them up with what our market timing models are saying, our 1 to 2 week market timing models. And here we have our risk appetite scoring system we're putting up in front of you now. That's had a reasonable correlation with the equity market in recent months. Sometimes it's extremely tight with the equity market on a one to two week basis. Sometimes it drifts away. But at the moment, it's looking interesting and it's on buy. It's telling you there's been a bit of fear out there in the last few weeks and it's encouraging, particularly given the resilience in price action that I just talked about. So if you're interested in seeing all our suite of 1 to 2 week market timing models each and every day, getting our update on the market, the price action, how it's trading, and getting an explicit recommendation on S&P 500 futures or other equity index futures, please take a trial of the report. Simply click on the link below and take a trial and see if you like it. Or if you're a subscriber, it should be in your inbox around 9 a.m London time each and every trading day of the week.

So what are we watching this week? Well, there's a ton of stuff to focus on, particularly in the States. We've got all eyes on CPI and the Fed meeting on Wednesday. The Fed meeting also comes with the summary of economic projections, the dot plots, how many cuts are the Fed governors, the regional governors pricing in over the course of the rest of the year and next year? That'll be watched closely, along with the press conference tone and all of the detail that goes with that. So that is key. That's critical. Lots of other bits and pieces of US data, including the NFIB small business survey where there's been real weakness in recent months, as well as Michigan sentiment on Friday. Elsewhere, there's a Bank of Japan meeting back end of the week that'll be watched closely. There's some Chinese data including inflation and total social financing, total lending. They'll be watched closely as well. They're key. And then we've got other bits and pieces like Broadcom's earnings. Broadcom is a big AI player. It doesn't get as much headlines as Nvidia, but it's a key stock. Watch its earnings closely, any messages coming out of that.

So that's it from us. That's your morning market hit for Monday, 10th of June. Thank you for listening. Please do subscribe to these videos, like and share on social media, follow us on LinkedIn, Twitter, Facebook, and/or Instagram. Thank you for listening. Stay safe. Trade well.

FIG 1: CAC40 Futures 5-day Tick Chart

FIG 2: French Government Bond Yields 3-day Tick Chart

FIG 3: S&P500 Futures Candlestick Chart

FIG 4: US Top Level Sectors Chart

FIG 5: US 10 Year Government Bond Yields 10-day Tick Chart

FIG 6: S&P 500 Short-Term Risk Appetite Scoring System