Wednesday's Market Minute: Bulls Need A Hero

Since last month’s GDP print beat expectations, U.S. equities have done a U-turn, volatility’s risen, and stocks are trading one-to-one with bonds again – the hallmark of last year’s bear market.

The S&P 500 closed below its 50-day moving average yesterday for the first time since Mar. 28, and the 10-year yield is a hair below its post-Covid high of 4.3%. The correlation between the two over the past 20 trading days is down to negative 0.8. It was the opposite three months ago. As growth expectations get ratcheted higher, optimism about the economy has given way to fear over resurgent inflation.

All signs point to a deeper drawdown in stocks if Treasuries break down, and it looks like they want to. Tuesday’s stock selloff after weak China data was cyclical in nature, hitting banks, energy, materials, and consumer stocks the hardest. It was the type of day you’d expect to see a big bond rally, but yields managed to stay elevated.

If the coiled spring of the bond market lurches upward again, stock bears have a story again.

Naturally, many are hoping Nvidia’s earnings next week could be the steroid shot this market needs. But not only is it going to be tough to deliver a surprise as big as last quarter’s, the response to big-tech earnings so far this season suggests some exhaustion on that front. Should that be any surprise? How high can valuations go when the Fed’s offering 5%?

 Investors may want to root for something a bit more grounded. Perhaps Cisco or Wal-Mart, both reporting this week. They’re strong legacy businesses that have a chance to be exemplars of corporate success in this pseudo-stagflationary environment. If there’s any strength in the consumer, it will show up in Wal-Mart. If Artificial Intelligence is truly going to revolutionize tech, Cisco should raise their outlook for the third straight quarter.

The bond market is telling investors to lower their expectations. As I wrote last week, the goldilocks story is over. Bulls need a new hero.

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