“Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”
Stanley Druckenmiller
LIQUIDITY
Model
Slight positive change and above its average trend
Expectations
Sofr = 2 cuts
Fed = 2 cuts
The combination of the following 2 factors signal more upside for risk assets:
Credit spreads continue to experience strong negative momentum which means risk appetite is strong
Less cuts are getting priced in as the 2 year treasury yield is falling faster than the 3 month treasury yield
This implies credit risk continues to decrease which means lending standards are still loose which means investors still want to take on risk.
GROWTH
Model
Slight week of positive change in estimates but levels are relatively normal.
ETFs such as industrials and transportation are outperforming other sectors signaling growth is not stagnant.
INFLATION
Model
Another week of no change while staying above its average trend
Expectations
Inflation is expected higher globally by the end of the year and the next print on Tuesday is expected to come in higher.
SECTORS
Energy outperformed while financial and consumer defense underperformed.
On a monthly basis regional banks (smaller + riskier banks) are leading along with homebuilders while typical defensives like utilities, healthcare, and staples are lagging.
This combined with bitcoin hitting all-time highs and the market still preferring cyclical stocks (not at extremes yet) signal more upside potential.
FX
USD and AUD outperformed this week while JPY and GBP were the worst performers.
USD model is predicting a continued negative trend
FX flows are signaling a negative USD skew in the short term
RISKS
Breadth is not at extremes yet on the 20, 50, or 200 day
Equity volatility continues to move lower but at these levels in the index Trump is likely to “sacrifice points” and headlines relating to tariffs may push prices lower
Still no sign of hedgers wanting to protect downside at these levels in equities
Bitcoin
Here are the following levels to watch for buying/selling pressure:
Trades
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