Source: Finance Federation Author: Xiao Xiang

The Dow fell once this week, which unfortunately ended its longest continuous rise since this year (eight consecutive gains). However, as far as Wall Street is concerned, the overnight market was clearly not pessimistic: the Nasdaq Composite Index, which is concentrated in technology stocks, still rose 0.3%, and the US retail army under the heat of old memes is also making a comeback.

Perhaps more importantly, many industry insiders are not afraid of the upcoming US CPI data for April; on the contrary, they are afraid of missing out on the next wave of the market. Some traders seem to be struggling and doing their best right now...

Goldman Sachs strategists said in a recent report that the US stock market and bonds will face upward risks this week because traders are continuing to establish long positions in various assets until key inflation data is released.

Scott Rubner, managing director of Goldman Sachs Global Marketing and tactical expert, wrote in a report to clients on Monday, “Based on last week's capital inflows, I'm starting to see some real FOMO (fear of emptying) feelings begin to emerge.”

The S&P 500 index as a whole hovered around 5220 points on Monday. This was due to market expectations that the Federal Reserve will eventually cut interest rates this year and the resilience shown in corporate Q1 earnings reports. According to data compiled by the industry, 79% of S&P 500 companies have so far surpassed expectations in earnings per share in the first quarter.

Keith Gil, who set off a meme stock frenzy in 2021 under the screen name “Roaring Kitty” (Roaring Kitty), posted again on the X platform on Monday after a lapse of nearly three years. GameStop's stock price soared by more than 70% in a single day, further triggering speculations about the possible return of the US retail army.

“The barking kitty is back, and the message boards are all crazy this morning. It's time to start a new main line,” Rubner said. The sharp fluctuation in Game Station's stock price was fueled by bullish options quietly collected by traders in early May.

Rubner said that commodity trading advisor (CTA) funds are already increasing long positions in US stocks. Total systemic stock positions, including CTAs, volatility control, and risk parity funds, have now increased again after reducing long positions during the sharp decline in early April.

Rubner pointed out that CTA demand for stocks and fixed income assets is likely to emerge in the coming week, and most Goldman Sachs models have shown a “green sweep” signal — meaning that investors will continue to pour into the US stock market and bond market even if the market falls.

“I think there is an upward trend in the US 60/40 portfolio this week,” Rubner said.

He did not specify the extent to which the S&P 500 index could rise or fall, but he pointed out that capital inflows into US stocks in the coming week could be between $7.6 billion and $13.2 billion.

In addition, since more than 90% of S&P 500 companies have already announced first-quarter results, the market is in the “peak window” of corporate repurchases, and Rubner expects demand of about 5.5 billion US dollars every day until mid-June.

In the bond market, as the price of US bonds rebounded slightly overnight, the yield on US bonds of various maturities also generally declined further. Among them, 2-year US Treasury yields fell 0.2 basis points to 4.874%, 5-year US Treasury yields fell 1.1 basis points to 4.511%, 10-year US Treasury yields fell 1.3 basis points to 4.491%, and 30-year US Treasury yields fell 1 basis point to 4.632%.

Many industry insiders pointed out that the US April CPI report on Wednesday may provide key guidance on the policy outlook for the Federal Reserve's June interest rate meeting. At that time, Fed officials will update their quarterly economic and interest rate forecasts. Currently, the good news is that many investment banks, including Morgan Stanley and Barclays, believe that since housing rent inflation has sent a downward signal, the US CPI on Wednesday may be significantly “lower than expected.”

Of course, it is still unknown whether these optimistic predictions will come true. Ian Lyngen, head of US interest rate strategy at BMO Capital Markets in New York, said: “From now until the end of the year, the importance of CPI data to the Federal Reserve cannot be overemphasized. This data will either confirm that the last mile of inflation will be very difficult, or it will mark a return to the trend of slowing inflation in the second half of last year.”

Andrew Tyler, head of US market intelligence at J.P. Morgan Chase, said that according to current estimates of affordable cross-option prices, the options market is betting that the S&P 500 index will probably fluctuate about 1% in either direction after Wednesday's CPI report is released. The impact of this inflation indicator on US stocks is likely to be comparable to Nvidia's earnings report later this month.

Peter Tchir, head of macro strategy at Academy Securities Inc., pointed out that if the market resumes pricing for the Fed's interest rate cuts at least twice this year, then the 10-year US Treasury yield may drop to around 4.30%.

edit/lambor