Market Insights

U.S. Stock Dynamics: Focus on Micro Level

The S&P 500 index rose by 56 basis points, closing at 5,560 points, with post-market buying amounting to $2.1 billion (net buying for the sixth consecutive day). The Nasdaq 100 index increased by 61 basis points to 19,544 points, and the total trading volume on the Russell I exchange reached 20 billion shares, higher than the average daily volume of 16.3 billion shares this year. The VIX volatility index fell by 390 basis points to 24.17, crude oil prices dropped by 295 basis points to $60.21 per barrel, the yield on the U.S. 10-year Treasury bond decreased by 3 basis points to 4.17%, gold fell by 53 basis points to $3,329 per ounce, the U.S. dollar index rose by 18 basis points to 99.18, and Bitcoin increased by 46 basis points to $94,970.

Today's on-market trading was again light (27% lower than the 20-day average volume), with the Nasdaq 100 index just one step away from reclaiming the 50-day moving average. Although consumer confidence and job vacancy data fell short of expectations (consumer confidence dropped to April 2020 levels), CTA re-leveraging, stock buybacks, and (a small amount of) end-of-month pension demand provided support for the major indices. Crude oil fell by 2.9%, mainly due to: 1) Bessen's comments on the U.S.-China trade war 2) Continued inflow of Kazakhstani crude oil into the market 3) Weak earnings reports from energy companies CVI and RIG.

Market focus remains on the micro level, with overall performance better than concerns. Most popular short targets performed "as expected" (such as NXPI, RIG, PCAR, REGN), while popular longs showed divergence (SPOT down 3.5% / SHW up 5%). Notably, RCL's stock price remained flat after announcing strong earnings and guidance, as the tourism industry continues to lack buying interest, the airline sector's earnings were severely impacted, and there are concerns about lagging in the cruise sector. JBLU, GM, and UPS all exceeded expectations but suspended guidance due to emerging macro uncertainties. After-hours earnings movers included FSLR down 12%, WERN down 5%, BKNG down 3%, SNAP down 8%, SBUX flat, FRSH up 9%, and V up 3%, with the semiconductor sector remaining robust, QRVO up 6%, and STX up 5%. Visa bulls quickly converged on the same viewpoint, emphasizing that the strong data in April mainly came from the tourism sector, decoupling from the "demand front-loading bearish logic (in the commodity sector)."

The overall trading activity score for the market is 4 points (on a scale of 1-10). The market ultimately closed flat, down 9 basis points compared to the 30-day average. Long-term institutions net sold $1 billion, mainly driven by macro products, while hedge funds remained flat, with a neutral preference in sector positions.

Derivatives Market: Front-end volatility has receded, while long-term volatility remains strong, and capital flows have once again become calm. Following some demand for downside protection yesterday, clients continued to follow up today by increasing put spread combinations on SPX/SPY with quarterly expiration contracts. Despite the slowdown in market activity, due to market makers' gamma positions still being bearish (no substantial bullish positions since February), intraday volatility remains high Today's intraday volatility is 1.20%, while yesterday's volatility was 1.50%. Before the non-farm payroll data is released on Friday, the earnings reports of major companies will become the main focus. As of the close, the implied volatility for QQQ for the remaining time this week is 2.4%, and the implied volatility for SPX is 1.9% (data source: Pat Grahling)