The Morning Call
6/8/26
The
Market
Technical
As you can see, the
S&P finally had a bad week. I don’t think that necessarily means that we
were headed down big; it is simply too early to tell. What we do know is that
it remains (1) above all three DMAs and (2) in uptrends across all timeframes.
Plus on the fundamental side, the (1) economy continues to perform, (2) Trump
is starting to crawfish of the Iran nuclear issue [which maybe a short term
plus; but I think it a long term negative] and (3) there are three huge IPO’s coming---and
I can’t believe t\hat the Wall Street bankers are going to allow the Market to
go down ahead of those offerings.
On the negative
side, the index has bounced down off the upper boundary of its short term
uptrend (that shouldn’t be a big surprise) and broken below that very short
term uptrend (ditto). In addition, I have been documenting the technical analysts
community that has a general bias that the Market has some very weak internals,
suggesting that it could have some meaningful downside. The obvious support levels:
(1) the 50 DMA [~6766], (2) the lower boundary of its short term uptrend [6216]
and (3) the 23.6% Fibonacci retracement level [~5969].
Follow through.
Fear returns to Wall Street.
https://www.zerohedge.com/the-market-ear/fear-returns-wall-street
Summary:
Remember when everybody said protection was too expensive? The irony is that
many of those same investors are now discovering that expensive protection was
not actually that expensive. VIX and VXN are ripping higher, skew is getting
bid, and tail-risk measures are flashing stress. The vol market is finally
starting to matter again, but we're still a long way from true panic.urging,
something many investors had forgotten was even possible. The divergence
between tech stress and broader market volatility is becoming increasingly
difficult to ignore.
The real risk.
Summary: Some
big takeaways from this past week:
1.
The market finally stress-tested the AI trade.
2.
The stress-test happened from one of the most
extended positioning / momentum setups since the Dot-Com era.
3.
We saw demand for hedges Friday afternoon
and put volumes exploded, but hard to call it full capitulation.
4.
The “broadening” trade quietly worked
underneath the surface, though likely more as an AI-long / ex-AI-short
unwind than true cyclical enthusiasm.
5.
The Macro is becoming less supportive (higher-for-longer
rates, rising issuance, tighter liquidity backdrop), but micro/earnings still
matter more for now.
6.
The real risk here is not “AI is dead.” It’s that correlations and
crowding across global equity books have become dangerously synchronized.
The long bond had
a roller coaster week. In the process it made another lower high (negative). And
it is also challenging that support level set last January (and bounced off of
six prior times). Let’s see if it can hold. Working against that scenario is that
TLT is below all DMAs and in downtrends across all major timeframes. Plus with
stagflation still the most likely result of the destruction wrought on the oil
infrastructure and a spendthrift government, I am hard pressed to think that
bond prices are going to improve markedly.
Gold had another rotten
week, remaining in a very short term downtrend marked by the January 29th
top with four lower highs. Plus, it is now challenging its 200 DMA; if it
resets that support level, then there is more downside to the lower boundary of
its short term uptrend. Not surprising given a weak long bond and a strong
dollar.
The dollar was strong last week
and appears to be trying to break out of a trading range. I am not convinced
that the long term fundamentals support a move higher but if UUP follows through
to the upside in a meaningful way, then I will have to question my thoughts on
those fundamentals (which I have already started to do---see below).
Friday in the charts.
https://www.zerohedge.com/markets/historic-win-streak-ends-abruptly-strong-jobs-report-sparks-market-stampede
Summary: It appears 'good' news (strong jobs) is bad
news for momentum and stock markets as rate-hike odds (and TSY
yields) soared, bringing the dollar higher and crushing precious
metals and crypto. Oil traded down (despite claims of shots fired and no progress
in talks). Markets puked today as a risk off sentiment change is
introduced following a hotter-than-expected NFP this morning causing yields to
spike higher coupled with the continued digestion of AVGO earnings and
Anthropic recursive learning headlines. Late in the day, META
announced a major secondary share offering (to fund all the AI
malarkey) prompting another leg lower in the indices.. The S&P 500's setup
was already fragile. Higher-beta momentum names had run too far, AI
economics were facing tougher questions, and the trade’s success had created
the kind of crowding that makes any wobble risk turning into a self-feeding
drawdown. It was a bloodbath in
bond-land today as traders fully priced in a Federal Reserve
interest-rate hike by the end of this year after US job growth topped all
forecasts in May, spurring yields higher in the $31 trillion Treasuries market.
Interest-rate swaps indicated traders expect a quarter-point increase in
the US central bank’s target for the federal funds rate by the December policy
meeting...
More on Friday’s
pin action.
https://www.zerohedge.com/the-market-ear/bloodbath-2
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Monday morning
setup: US stocks futures rebounded and oil pared much of its overnight
gains, following a declaration from Iran that military operations
against Israel ended after the biggest military escalation between
Iran and Israel overnight. As of 8:00am ET, S&P futures rose 0.7% while
those for the Nasdaq 100 climbed 1.4%, with Mag 7 stocks trading mostly higher
in premarket trading ahead of Apple's WWDC keynote later today, which
may boost the Mag 7 group. Chipmakers that were the hardest hit in Friday’s
selloff attracted dip buyers in premarket trading. Marvell Technology 7.9%
while Micron advanced almost 4.2%. Nvidia led gains among the
Magnificent Seven heavyweights. While European stocks rose, South Korea's KOSPI
index fell by over 8% as chipmakers SK Hynix and Samsung joined a tumble in AI
stocks, the plunge prompted a 20 minutes trading halt at the start of the
session. It is unclear if today’s pre-market moves are more of a deadcat
bounce (given the moves in FICC mkts) or if Thurs / Fri represented the extent
of the pullback and now everyone is stepping in to buy the dip, according to
JPM. Treasuries fell, with the 10-year yield up one basis point to 4.54% as
traders added to bets that the Federal Reserve will hike interest
rates. The dollar dropped 0.2%. Brent climbed as much as 5.4% after
Israel retaliated against Iranian missile attacks, but the advance
eased after the Fars news agency reported that the country’s central
military command said the military operation against Israel has
ended. Precious metals are under pressure but see a modest bid after the
Iran news. Bitcoin climbed 2.8% after falling below the $60,000 mark
on Friday for the first time since Donald Trump won reelection in 2024.
Strategy Inc. Chairman Michael Saylor hinted at further
purchases. On the calendar, Apple's WWDC keynote is today, which can
boost Mag7 or disappoint again should Siri fail to impress. Inflation prints
are the other key releases to monitor.
Fundamental
Headlines
The
Economy
The
US stats last week were balanced though the primary indicators weighed positive
(three plus, one minus). Overseas, the data was very upbeat (for the second
week in a row) though the price measures were not (one plus, one neutral, two
minus).
With
no US inflation numbers, my comments from the prior two weeks remain unchanged:
Despite the ever louder narrative of rising inflation, last week’s
numbers don’t bear it out---for the second week in a row. This along with the
long bond seemingly trying to stabilize (see above) suggests that I get a bit
more circumspect about my inflation call. I don’t think that we will see a significant
drop in the inflation rate but perhaps we are at the point where it ceases getting
any worse. Of course, two weeks numbers are not sufficient to alter my forecast
but they also can’t be blindly ignored. Bottom line, I am standing pat for the
moment but more cautiously so.
Meanwhile,
the economic growth in the US remains strong enough to support my ‘muddle
through’ forecast at the very least. However, under normal circumstances, if the
price data were to regain momentum (which seems possible if not probable), I would
expect the Fed to tighten monetary policy and that historically opens the
possibility of an economic slowdown.
But
we have a new Fed chief and, at the moment, it is unclear to me how dovish/hawkish
he will be. Although given that he was appointed by Trump, who is a loud, an
aggressive proponent of an easy monetary policy, it would suggest the former. On
the other hand, he is a single vote. And with the recent hawkish comments
coming out of the several FOMC members, could their views/votes trump his? I
would expect some clarity on that issue coming out of the upcoming FOMC
meeting.
Bottom line: the economy is performing well and will likely continue to
do so at least in the short term, given (1) US energy independence, and (2) the
level of AI spend. On the other hand, I remain firmly convinced that
above average inflation is part of our near/intermediate term future.
US
International
Q1
Japanese GDP grew 0.5% versus forecasts of +0.3%; Q1 capital expenditures fell 0.7% versus
-0.9%; Q1 private consumption was up 0.3%, in line; the Q1 price index was up
3.2% versus +3.4%.
April
German factory orders fell 3.8% versus expectations of -1.2%
Other
Americans are saving less and defaulting more.
https://www.ms.now/news/affordability-crisis-savings-emergency-funds-loan-payments-inflation-economy
Update
on big four recession indicators.
The oil market underestimates frictions.
https://www.advisorperspectives.com/commentaries/2026/06/05/oil-market-underestimates-frictions-deal
Analysis of Friday’s nonfarm payroll report.
https://bonddad.blogspot.com/2026/06/may-jobs-report-solid-positive-report.html
Iran
Overnight news.
Israel conducted
airstrikes on a couple of apartment buildings in Beirut’s Dahiya district on
Sunday, in what the military described as targeting a Hezbollah command centre.
Iran launched four
waves of strikes against Israel on Sunday evening in retaliation for an Israeli
strike on Beirut, which it stated ‘crossed all red lines’, while it threatened
devastating blows if Israel expands Lebanon operations. Iran signaled a halt to
attacks if Israel refrains from strikes, but vowed stronger retaliation if
Israel strikes back, and it closed its western airspace until further notice.
IRGC said that the
Ramat David Airbase was hit by ballistic missiles and that future attacks are
to target US-Israel regional assets, while Tehran Times noted reports of
missiles being fired at a US airbase in Jordan.
Israeli PM
Netanyahu was reported to be holding security consultations following the
latest developments, while the Israeli military said the missiles launched by
Iran were intercepted, although Iran claimed a successful strike on northern
Israel.
US President Trump
said he was supposed to announce that a deal with Iran would be signed this
week, and now this is happening, while he called for Iran to end the missile
fire and return to talks. Trump also stated that he was not happy about Israel
striking Beirut and that Israel’s attacks were not coordinated with the US.
Furthermore, Trump said he would call Israeli PM Netanyahu to tell him not to
attack Iran in response, and noted that they are close to a final deal, which
he doesn’t want to blow up.
US attacked
Iranian coastal surveillance sites on Saturday after shooting down drones
launched towards the Strait of Hormuz. US military said that Iran had fired
missiles and drones towards Kuwait and Bahrain, while drones were also fired
towards 4 commercial ships in the Strait of Hormuz.
Opening Pandora’s box.
https://www.zerohedge.com/geopolitical/has-trump-opened-pandoras-box
Inflation
Of course, there is no inflation.
https://global-macro-monitor.com/2026/06/03/of-course-theres-no-inflation/
AI
Hyperscalers are strapped for cash.
https://www.semafor.com/article/06/04/2026/hyperscalers-are-strapped-for-cash
Is an AI bubble inevitable?
https://awealthofcommonsense.com/2026/06/on-the-inevitability-of-an-ai-bubble/
The
Financial System
How big is the private credit market?
https://giftarticle.ft.com/giftarticle/actions/redeem/57dd0555-bf72-432e-aa43-a753f43d59df
Investing
A history of IPO stock performance.
The
Summer of Mega-IPOs - Carson Group
Late stage mania.
More
on valuations.
The beginning of the end.
The Market is starting to price something most
people don’t see.
https://www.zerohedge.com/geopolitical/market-starting-price-something-most-people-still-dont-see
Brace for June event risk.
https://www.zerohedge.com/markets/hartnett-brace-june-event-risk-and-cpi-print-could-pop-bubble
Summary:
In his latest Flow Show (available here for pro subs), he picks up where he
left off and reminding again that "booms and bubbles are ended by
bonds" he warned that markets are facing a cascade of
June events that could send 30-year bond yields in UK >6%, US >5%, Japan
>4%, and are likely negative for risk assets given bullish Positioning &
bullish Profit expectations, so he suggests to watch...
- June 5th US payrolls: have averaged 150k
past 2 months, after averaging -50k prior 12 months; ahead of Friday's
payrolls report, Hartnett said that a May payrolls number >125k
means the US labor market is reaccelerating sharply and GT30 yield to test
5¼% highs. We now know of course, that the May jobs report was a
4-sigma beat to expectations rising a whopping 172K and indeed sending
yields sharply higher, if not quite to the 5.25% recent highs.
- June 10th US CPI: the number is up
0.6% MoM past 3 months and up 0.4% past 6 months; a May print above 0.4%
(estimates currently have it a 0.5%) means US CPI >4% YoY and
on course for 5% by US midterms, and risk assets get twitchy: he cautions
that in the past 100 years once CPI crosses 4% on average SPX -4%
next 3 months, -7% next 6 months (source).
- June 11th ECB: 98% prob of
25bps hike
- June 16th BoJ: 83% prob of 25bps hike. This is "urgently
needed to stop Japanese yen blowing through Maginot Line of 160 versus US
dollar," according to the BofA strategist.
- June 17th first Warsh FOMC: arguably one of the two most important June events;
here is the dilemma - Warsh
too dovish and long-end heads toward 6%; Warsh too hawkish and SPX
pullback toward 7k; on the other hand, a goldilocks Warsh
means the best Wall Street barometer NYSE index (NYA) can decisively break
to new all-time highs (>24,000).
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