Last Week's Close
E-mini S&P 500 Futures (June): Settled at 4174, down 29.00 on Friday and up 3.00 on the week
E-mini Nasdaq-100 Futures (June): Settled at 13,850, down 103.50 on Friday and 77.00 on the week
U.S. benchmarks opened higher last night and have started the new month on strong footing. The adage is “sell in May and go away,” characterizing a 6-month timeline through October. It certainly isn’t that simple though: if you sold last May through October, then you would’ve missed a 15% rally in the S&P. As with all seasonal ideas, they must be bubble-wrapped with timing or technicals and, of course, the current fundamental backdrop.
Ultimately, this old and less-relevant saying depicts the idea of locking in some of your profits after a strong seasonal run through the Christmas rally and the first quarter. We’ve recently neutralized what’s otherwise been a very bullish bias through much of the last year, hedged our equity portfolio exposure to a degree, and are trading spikes to the short side in the very near-term. That said, we certainly don’t plan on fighting a market that unquestionably has a path of least resistance higher over the intermediate-to-longer term.
Furthermore, the strong start to the month, which began last night, should come as no surprise as February, March, and April each started out with gains of 1.6%, 2.3%, and 1.1%, respectively, after soft finishes on the last day of the prior month.
The question we must now answer is whether the rest of the month will play out like February and April— making higher highs— or like March, which was much choppier before finding its bullish direction. For now, we’re leaning on March, but this week’s slate of economic data and earnings will play a critical role.
European stocks are leading global markets higher on news the European Commission proposed allowing non-essential travel for vaccinated tourists from countries with low infection rates. The move must be approved by member states but strikes an upbeat tone in that the region has contained the worst of the virus. Further buoying the risk landscape was a statement from India health officials stating, “early signs the Covid-19 curve is plateauing.”
Retail Sales data from Germany this morning was much stronger than expected, however, their final April Manufacturing PMI and that from the Eurozone was revised a shade lower. We now look to final April Manufacturing PMI from the U.S. at 8:45 a.m. CT and the more closely-watched ISM read at 9:00. The afternoon unfolds with speeches from NY Fed President John Williams at 1:10 p.m. CT and Fed Chair Jerome Powell at 1:20.
On Friday, Dallas Fed President Robert Kaplan, a non-voter until 2023, said that low interest rates have encouraged excessive risk-taking, and the Fed should begin discussing a taper. Were Kaplan’s comments the beginning of the “Jekyll and Hyde” message that we’ve pointed to as a possibility? There would be no better committee member to begin such an exercise than this long-standing known hawk. At the least, traders should keep a close eye on whether such comments are acknowledged by Williams, Powell or any other committee members this week.
Lastly, tonight, we look to the private China Caixin Manufacturing PMI read at 8:45 p.m. CT.
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