U.S. equities advanced on Monday, led by notable strength in the Nasdaq, which helped propel the S&P 500 higher. However, beneath the surface, our proprietary S&P Indicator declined, extending last Friday’s Bearish Impulse. This divergence highlights a classic distribution phase, where outward resilience masks underlying market fragility.
While the S&P 500 appears to shrug off negative headlines from the White House, the market continues to price in the potential impact of new tariffs, particularly if U.S.-China trade tensions escalate. Or EU-US trade tensions. Or any country in the world vs. US trade tensions, not to forget in particular the penguin island… Wallstreet is not pricing in any of these and expecting another TACO. Notably, China’s GDP surprised to the upside, providing a short-term tailwind for risk assets. Nevertheless, the 6,300 level remains a formidable resistance for the S&P 500. Without a decisive daily close above this threshold, the outlook for the bull market remains uncertain.
With yields on the rise, exaggerated debt becomes another threat to the markets. Despite the apparent strength in the S&P 500, we maintain a cautious and defensive stance. A retest of the daily 20-day moving average is overdue, and investors should be prepared for increased volatility and a possible pullback in the near term. The inflation report today before market open could be the catalyst.