Risk-off update.
The 3rd week of stock market surge has just begun since the S&P500 marked a local low on April 19 (the only close below 5,000 points). On monthly basis, after a decline of 4.16% in April, May (MtD) is already up by 2.88% - see Figure 1.
However the Mag7 companies, which set ATH (all-time-high) after today's session, look much better. As in the case of the S&P500, we have the beginning of the third positive week, but the Mag7 also looks very strong on a monthly basis, where in May (MtD) they are already up by 6.23% - see Figure 2.
There are big differences between the S&P500 and Mag7, starting from the peak on March 28 this year: S&P500 is still below (-1.40%), while Mag7 is +3.86%. See Figure 3.
In the case of Mag7, good financial results and the prospects of interest rate cuts are the main reasons for the outperformance.
Figure 4 shows the year-to-date (YtD) returns for Mag7’s constituents. The undisputed leader is Nvidia with a return of +86%.
However, since the last ATH on the S&P500 (March 28), Alphabet has been the best performer (+11.4%) - see Figure 5.
It cannot be definitively said that the correction is over (the previous correction of this type in 2023 lasted 3 months). From the point of view of macro data, the most important will be the US CPI inflation for April (published on May 15). At this point, the Cleveland FED inflation nowcast indicates a monthly core CPI change of +0.31% - a reading of +0.25% and lower could end the current correction...
The yields of 2- and 10-year USTs look encouraging... last time they also "marked" the end of the correction on the S&P500 - see Figure 6. But a really good inflation reading on May 15 could be the final straw...
But if not in May, then maybe on June 12 (CPI inflation for May)…
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