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Business Times
10 hours ago
- Business
- Business Times
Traders scour for ‘elusive' catalyst to push S&P 500 to record
For stock traders there's little to fear at the moment. Corporate America keeps churning out solid earnings. The chances of a recession aren't blaring. And President Donald Trump's tariff policy is expected to become more clear before long. So what's there to worry about? Despite sitting just 2.3 per cent away from a new all-time high, the S&P 500 Index has been struggling to get there, meeting resistance at 6,000 – a key psychological threshold. Prior to Friday (Jun 6), the equity benchmark had not seen a move exceeding 0.6 per cent in either direction for seven straight sessions – the longest stretch of calm since December, according to data compiled by Bloomberg. With a key inflation read on tap Wednesday as the Federal Reserve enters a blackout period before its June 18 interest-rate decision, money managers are wrestling with what could propel the S&P 500 back to a record after the index soared 20 per cent from its April lows. 'For US stocks to get back to all-time highs we have to get rid of uncertainty, but most catalysts are elusive for now until the trade war chaos is resolved,' said Eric Diton, president and managing director of the Wealth Alliance, whose firm is now putting on hedges in portfolios to protect against a sell-off. From US job growth moderating in May to sluggish US services and manufacturing activity, weakening economic data have been piling up recently. Yet, the market has been blowing it all off, with traders pricing in little risk over the next month on optimism that the worst effects of Trump's tariffs may be avoided. The Nasdaq 100 Index is just 1.9 per cent away from a record. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up 'My concern is investors are becoming too numb to the trade war and economic risks, so when red flags appear they start dismissing them,' said Oliver Pursche, senior vice-president and adviser at Wealthspire Advisors. Some traders are preparing for sticky inflation. The consumer price index report is forecast to show the core reading – which excludes food and energy costs – rose by 0.3 per cent in May from a month earlier, above April's 0.2 per cent print. That would leave the core gauge up 2.9 per cent year-over-year – above the Fed's 2 per cent target. Wells Fargo economists see inflation picking up in the second half of the year. Signs of a better-than-expected economic outlook has revived hopes that chair Jerome Powell will resume reducing borrowing costs as soon as September. At the same time, some are wary that any surprises in inflation and eventual return of volatility may fuel an unwind of wagers on riskier investments and spark another sell-off. With the S&P 500 trailing the MSCI All Country World Index excluding the US Index by almost 12 percentage points in 2025 – marking the worst start to a year against its global peers since 1993 – Bank of America strategist Michael Hartnett says global stocks are getting close to triggering a technical 'sell' signal after investors rushed into risk assets, leaving positioning stretched. 'Once there's too much complacency there's a risk of surprise, so I'm more cautious heading into the summer,' said Patrick Fruzzetti, portfolio manager at Rose Advisors, who is snapping up shares of health care and staples companies that tend to have comparatively low valuations and offer robust dividends. Traders are, however, still obsessed with macroeconomic data. Over the past three months, the S&P 500's average realised volatility on days when the CPI report, the government's monthly jobs data and Fed rate decisions are released has been nearly 42 per cent, compared with a reading of 29 per cent on all other sessions, according to data complied by Asym 500. After fund managers reduced cash holdings and invested heavily in US equities over the past two months, the boom has left demand for loss protection muted. The market is vulnerable to being caught off-guard if CPI comes out hotter than expected, Wealthspire's Pursche said. 'I fear many are not paying attention to these threats because most are thinking 'everything will be fine,' but they're ignoring warning signs,' Pursche added. Still, rules-based and discretionary investors remain moderately underweight equities, data compiled by Deutsche Bank show. That means traders still have dry powder to buy stocks in the weeks ahead. One key challenge for investors will be assessing the lagging impact of tariffs on inflation, which has money managers split on where stocks are headed in the coming months. 'We've become desensitised with inflation because everyone is betting that it will take months before tariffs will flow through into the economic data,' said Brooke May, managing partner at Evans May Wealth. 'But if there's a hot CPI print, it could lead to another sell-off in stocks, though will investors use any drawdown to keep buying the dip, or sell?' BLOOMBERG
Yahoo
31-03-2025
- Business
- Yahoo
Wall Street Wants to Buy Stock Market's Dips, Question Is When
(Bloomberg) -- The US stock market is about to conclude its worst quarter compared to the rest of the world since the 1980s. Gold-Rush Fever Returns to Historic New Zealand Mining Town What Frank Lloyd Wright Learned From the Desert Bank Regulators Fight for Desks as OCC Returns to New York Tower These US Bridges Face High Risk of Catastrophic Ship Strikes Charter Schools, Colleges Push Muni Debt Distress Near Record Obviously there have been lots of dips along the way to this ignominious milestone, which also means investors should have some attractive entry points to start buying again. Much of Wall Street is wondering when it will be safe to dive in. But with so many factors up in the air, from trade wars to economic growth to geopolitical tensions, the consensus appears to be, 'Not yet.' 'We're mired in uncertainty,' said Mary Ann Bartels, chief investment strategist at Sanctuary Wealth. 'We don't have confidence that US stocks can significantly recover until we know what exactly the tariffs are and the subsequent impacts to corporate earnings.' The S&P 500 Index has shed 5.1% this year, trailing the MSCI All Country World Index excluding the US Index's 6.5% gain. That's the widest gap in any quarter since 1988, according to data compiled by Bloomberg. The main problem is the rout in the big technology stocks that drove the recent two-year rally as investors were captivated by artificial intelligence euphoria. You can see it in trading patterns, where much of the market beyond big tech is holding up reasonably well, while the Magnificent Seven former darlings are crumbling. For example, the equal-weight version of the S&P 500 and the Dow Jones Industrial Average are performing better the regular S&P index this year, a combination that since early 1990 has only happened 26% of the time. Selling Risk This is all coming to a head as traders rush into less risky positions in response to President Donald Trump's trade plans and fears of slowing growth. The Trump administration says it will roll out broad-based reciprocal tariffs on Wednesday, stoking worries about an economic slowdown that eats into Corporate America's profits and, in turn, dims the outlook for US stocks. It's a stunning reversal for investors to process. The S&P 500 entered 2025 coming off two consecutive years of 20% gains, the first time that's happened this century. But the boom left positioning stretched, valuations pricey and the market vulnerable. With global risks suddenly amplified, traders are seeking safe areas to hide out, putting S&P 500 and the Nasdaq 100 Index on track for their worst quarters since 2022. Still, the speed and magnitude of the drop aren't shaking the belief some Wall Street pros have in the strength of US large-cap winners. 'We all know valuation is very cheap for international stocks, but that's been the story for 15 years,' said David Wagner, head of equities and portfolio manager at Aptus Capital Advisors. Traders need to make sure these 'aren't false signals,' he cautioned, adding that he has kept his overweight recommendation on big tech. Indeed, there's a counterintuitive school of thought that says when sentiment and positioning get this bad, it clears the way for a short-term snapback. Since equity positioning was cut to the bone on consensus expectations for more losses, some investors aren't worried enough to bother hedging more after playing defense to start the year. 'Tech is still the leader over the long haul,' Sanctuary Wealth's Bartels said. History, however, gives reason for caution. Over the last 35 years, US equities have outperformed the rest of the world 70% of the time. But in the six instances when they trailed their global counterparts by more than 2.8% through mid-February, as is the case in 2025, they remained behind at the end of the year, according to data compiled by Bloomberg Intelligence. 'The US has been a victim of its own success,' said Vincent Lorusso, chief executive officer and portfolio manager at Clough Capital Partners. 'The broadening into other areas, whether that's energy or international or value, is going to be a headwind for the index. But it doesn't preclude people from making money.' Technical Signals For technical traders, a drop in positioning to the bottom of the historical band, which happened during the last trade war in 2018 and 2019, would need to take the S&P 500 down to 5,250 — a drop of more than 6% from Friday's close of 5,580, Deutsche Bank AG data show. That leaves investors eyeing key levels, like the positive momentum divergence between the S&P 500 and the Euro Stoxx 50, a telltale sign of trend exhaustion that would signal a potential reversal for US equities. Volatility also returned to the market on Friday after a brief quiet stretch. The Cboe Volatility Index, or VIX, climbed back above 20, a level that indicates traders are starting to get a bit anxious. And a gauge of implied volatility in the VIX — the VVIX — had its biggest jump of the year after hovering around its lowest level in six months. Wall Street is likely to get a clearer reading on where this is all headed over the next six weeks. There are two crucial jobs reports coming, the first due Friday, a blitz of earnings from some of America's biggest companies, starting with JPMorgan Chase & Co. on April 11, and then the Federal Reserve's next interest-rate decision on May 7. With expectations building that the Fed won't cut rates as much as initially hoped this year, equity strategists who were largely wrong about the big rally over the previous two years are struggling to figure out what's next. Barclays Plc's Venu Krishna cut his year-end S&P 500 target to 5,900 from 6,600, warning that weakening growth will continue to curb stock gains in 2025. His estimate represents a 5.7% rise from Friday's close. Goldman Sachs Group Inc.'s David Kostin and well-know stock bull Ed Yardeni of Yardeni Research have also tempered their outlooks. But Deutsche Bank's Binky Chadha is sticking with his call for the S&P 500 to soar to 7,000 by late December on hopes that Trump will scale back tariffs. 'When the bear market pieces are everywhere, it will be a good time to flip back,' said veteran strategist Jim Paulsen, who thinks it's unlikely the rout will escalate into a full-blown crash, though still sees more pain ahead. 'What's going to be a hell of a question is, who are the next leaders?' Trump's IRS Cuts Are Tempting Taxpayers to Cheat Google Is Searching for an Answer to ChatGPT Israel Aims to Be the World's Arms Dealer Business Schools Are Back How a US Maker of Rat-Proof Trash Bins Got Boxed in by Trump's Tariffs ©2025 Bloomberg L.P. Sign in to access your portfolio
