Weekly Market Roundup
The defining development of the week was a significant upgrade to the Quad framework. Hedgeye revised June's monthly Quad from Quad 3 to Quad 2, extending the monthly sequence to Quad 2 through July before a Quad 3 transition in August. That revision matters because it extends the confirmed runway for the current regime, Growth accelerating and Inflation accelerating, and reinforces the case for maintaining pro-growth positioning rather than rotating defensively, with August marking the first anticipated Quad 3 transition.
The U.S. Dollar continued its breakdown, sustaining a bearish signal and sitting at an inverse correlation of -0.90 to the S&P 500. Dollar weakness remained the primary engine of Quad 2 outperformance across risk assets for the week. Emerging markets benefited most directly, with international equity indices broadly advancing on the back of the down-dollar tailwind. The commodity complex continued to strengthen as well, with the CRB Index printing fresh Quad 2 cycle highs and copper advancing +3.1% on the week to its own cycle high.
U.S. equities delivered one of the stronger weeks of the year. SPY, QQQ, and IWM all printed simultaneous all-time highs on Thursday, a Quad 2 trifecta that historically signals momentum rather than exhaustion. Wednesday's broad advance was confirmed by volume accelerating 11% above its 30-day average, consistent with systematic positioning adding on strength rather than fading it. The credit market is sending a similarly supportive signal, with high yield OAS spreads compressing -37 basis points over the past month, the bond market's way of saying it expects corporate earnings to hold up. The 10-year Treasury yield briefly broke above its March cycle high before settling at 4.41% into Friday's close, consistent with the higher-for-longer rate environment Quad 2 anticipates. The VIX remained firmly in the Investable Bucket at 17.12, and positive gamma positioning continues to suppress near-term volatility.
CPI on Tuesday is the most consequential data release of the week and will set the tone for markets through the back half of May. The bond market has been pricing a higher-for-longer environment, and a print that confirms continued inflation acceleration would validate the Quad 2 thesis and likely extend the current risk-on momentum. PPI follows on Wednesday alongside the IEA and OPEC monthly reports, which will provide important context for crude's recent price action and where energy markets are headed structurally.
Retail Sales on Thursday will offer an early read on whether the consumer is holding up under the weight of elevated rates and persistent inflation, while Industrial Production on Friday rounds out a dense calendar. Together these releases will either confirm or begin to challenge whether the growth-accelerating side of Quad 2 remains intact heading into the summer months.
The June Quad upgrade to Quad 2, establishing a 2-2-2-3 monthly sequence with the Quad 3 transition arriving in August, is the most significant macro development of the week and has direct implications for how we are positioned. The regime, short duration, long beta, long emerging markets, long commodities, and long selective technology, remains intact and now has a longer confirmed runway than it did seven days ago. Dollar weakness continues to function as the primary transmission mechanism for Quad 2 outperformance across non-U.S. assets and commodities, and the systematic flows that have been supporting equities on dips remain in place. We are watching the energy sector closely, as recent softness in crude prices reflects idiosyncratic buffer and flow dynamics rather than deterioration in underlying commodity fundamentals. The Quad 2 thesis has not changed.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com