Weekly Market Roundup
The U.S. Dollar maintained its bullish breakout from the prior week, sustaining the signal reversal from the prolonged bearish trend. The 30-day correlation between the dollar and the S&P 500 shifted from negative 0.71 to positive 0.28, altering the cross-asset transmission mechanism that had supported international equity and commodity outperformance in prior weeks. The question going forward is whether earnings growth steps in as the primary driver of continued equity performance.
Bond yields advanced to new inflation cycle highs early in the week, with Monday's move arriving fast enough to generate a brief scare in equities. The market absorbed the pressure and broadly advanced. The Dow Jones and Russell 2000 led with gains of 2.61% and 2.75% respectively, while the Nasdaq lagged at 0.48%, reflecting early rotation away from large-cap technology and toward cyclical and small-cap exposure. The 10-year Treasury settled at 4.57% and the 30-year reached 5.10%, both new cycle highs. The VIX held in the Investable Bucket throughout the week and positive gamma positioning continues to suppress near-term volatility.
The earnings backdrop provided meaningful fundamental support. Aggregate year-over-year earnings growth came in near 46% across the largest technology-oriented names in the Nasdaq 100, with the broader S&P 500 posting roughly 27.5% year-over-year growth acceleration.[1] At the sector level, the first meaningful signals of regime rotation are beginning to emerge.
The most consequential release of the week arrives Thursday, when PCE and the preliminary GDP print are released simultaneously. PCE is the Federal Reserve's preferred inflation measure, and a reading that confirms continued inflation acceleration would keep the higher-for-longer rate environment intact and support the case for continued equity exposure. GDP will provide a direct read on whether growth is holding up as required. Wednesday's ADP employment report and Thursday's Initial Jobless Claims and Personal Spending round out the picture on labor market and consumer health. Friday closes with the Chicago PMI. Note that Monday is Memorial Day and markets are closed.
The dollar's sustained bullish breakout through last week marks the most meaningful shift in the cross-asset backdrop, and it has direct implications for positioning. With the dollar correlation to equities now positive, international equity exposure faces a diminished tailwind. The commodity complex, however, retains strong underlying signal strength and our conviction there remains intact. The earnings story steps in as the primary driver, and those numbers are compelling. With technology-oriented companies reporting aggregate growth near 46% year-over-year and the broader index at 27.5%,[1] the fundamental case for equity exposure does not depend on any single macro variable. The rotation underway at the margin, out of cyclical growth and into secular growth, is consistent with the market beginning to price the Quad 3 transition expected in August. Quantum computing, robotics, and technology remain our areas of highest conviction. The macro backdrop remains constructive, even as it grows more selective.
[1] Hedgeye Risk Management
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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