SPDR S&P 500 ETF Trust (SPY) Forecast: Equities rally in reponse to record low Michigan sentiment reading
- S&P 500 (SPY) gained on Friday as relief rally was sparked by falling bond yields.
- Rising recession fears fueled bond yield collapse.
- Nasdaq is the outperformer due to interest rate-sensitive growth stocks.
The equity market recovery gathered pace on Friday as a terrible reading from the University of Michigan field concerns over an imminent recession. All major indices closed higher on Friday: Dow Jones +2.68%, S&P 500 +3.06%, Nasdaq +3.49%. Energy stocks continued their recent underperformance as the ELX Energy sector was the worst performer. A global recession would naturally see oil prices fall as demand destruction sets in. This has set up the curious phenomenon we mentioned last month, whereby energy stocks are falling despite oil prices remaining high. The stock market tends to look forward by six months to one year, while oil prices reflect a more immediate time horizon.
S&P 500 (SPY) ETF news
The bullishness was everywhere on Friday. The put/call ratio fell to its lowest level since early April, while the number of stocks advancing hit nearly 85% across the entire NYSE.
Put/call ratio, daily
Percent of upside stocks, NYSE, daily
Falling yields have been the big driver of the recent rally, and after the terrible University of Michigan reading, investors are now penciling in lower rates and a peak in the hiking cycle in early 2023 before rate cuts come back into play. So sad news is good news then!
US 2-year yields, daily
Bond market volatility remains high. The MOVE index has come down, but bond investors are still struggling with direction from the Fed.
MOVE, daily
Commodity prices are also signaling a recession – look at copper go!
Copper futures, front month, daily
Copper is used as a global GDP barometer as its use is so widespread.
SPY ETF forecast: Mind the gap
The first gap is filled. Now can we get the next one done? Resistance then from $396 up to $401 will see the next gap filled. That should happen soon with the end of H1 and with indices rebalancing this Friday. It looks like equity inflows should be the dominant factor. $415, the fail from the previous bear rally, would then be the next resistance and likely a failure.
SPY chart, daily
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Author
Ivan Brian
FXStreet
Ivan Brian started his career with AIB Bank in corporate finance and then worked for seven years at Baxter. He started as a macro analyst before becoming Head of Research and then CFO.
