SignalPlus Macro Analysis (20240304): Expectations of rate cuts are delayed, SPX continues to rise
Risk assets continued to rebound last week, and even another regional bank reporting credit problems and a prominent economist declaring that the Federal Reserve will not cut interest rates in 2024 could not stop the advance of the rising train. The SPX has risen in 16 of the past 18 weeks, a run not seen since 1971, according to Deutsche Bank.
On the one-year anniversary of SVBs collapse, New York Community Bancorp management said the bank discovered significant flaws in its internal loan review process, resulting in a 100% goodwill impairment ($2.4 billion) and the management teams Rectification, its stock price plummeted last Friday. However, unlike last years widespread panic, Wall Street seems to believe this is just an isolated case, and the weakness in the stocks net ratio (around 0.5) has largely reflected these concerns, even as NYCB shares plunged 20% on Friday. %, but the KBW Regional Bank Index only adjusted slightly (about 0.3%).
The U.S. economic recession is far away (the Atlanta Fed estimates first-quarter GDP growth of about 3%), the U.S. consumer is still quite strong (the Bank of America mentioned that consumer spending increased by more than 3% in February), and employment/wage/inflation growth remains stable. , chief economist at Apollo, said the Federal Reserve will not cut interest rates in 2024 as the central bank will spend much of 2024 battling inflation and keeping yields high. Slok pointed out that U.S. growth expectations have risen sharply, the job market remains tight, core inflation remains high, and financial conditions are too loose. These factors will jointly curb easing expectations. In addition, the Federal Reserve has shifted from its verbal policy starting in the fourth quarter of 2023. This has provided sufficient impetus to asset prices.
Chairman Powell will provide his semi-annual monetary policy update to the Senate Banking Committee on March 7, where he will have the opportunity to discuss the recent rebound in U.S. inflation data and be questioned on the rationale for Decembers dovish turn. In addition, the earnings season has passed, and corporate profits have been considerable, which has also been reflected in stock prices. According to Bloomberg, SPXs profit exceeding pre-season forecasts has the potential to become the largest since the fourth quarter of 2021. The growing earnings have undoubtedly caught Wall Street off guard, with strategists rushing to raise year-end targets for the SPX, with the media reporting more than six forecast upgrades in the past two weeks alone.
Similar to cryptocurrencies, retail trading activity has surged, with volume in individual stock options continuing to increase well beyond 2021 highs and accelerating further following positive earnings results from NVDA and META.
In China, the stock and bond markets have finally experienced exciting correlation changes, with the prices of the two asset classes finally starting to synchronize (lower interest rates = higher bond prices). Have Chinese assets reached a turning point? Are the Peoples Bank of Chinas easing policies finally starting to be reflected in stock prices? Hopefully the positive price action continues...
On the cryptocurrency side, record capital flows continue to flow through ETFs, and positive market sentiment appears to be spreading to altcoins as well as memecoins, with SOL (+17%), XPR (+16%), Cardano (+21%), Polkadot ( +19% ), Doge (+7% ) and Shiba (+131% ) have all accelerated over the past seven days.
On the options front, demand for short-dated options surged, with open interest concentrated around the $65,000 to $75,000 level. Options exchange Deribit posted record trading volumes last week, with 24-hour trading volume exceeding $12.4 billion and open interest exceeding $27 billion. Huge interest in short-dated call options is driving up implied volatility and causing a small gamma squeeze among option sellers, with much of the exposure set to expire on March 29, so is expected to remain open for much of the month. Prices will fluctuate repeatedly (up and down), so be sure to manage your risk carefully while enjoying the gains.
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