Due to the easing of U.S. government rhetoric regarding its tough trade policies, the SPX index wrapped up last week with its first nine consecutive gains in over 20 years, reclaiming all the losses since the liberation day crash.
Both China and the United States are continuing to take steps toward resuming trade negotiations and easing relations. Recently, both sides have adjusted their trade departments and negotiators, with China stating: 'The U.S. has actively conveyed messages to China through relevant parties recently, hoping to talk with us.' In response, China indicated, 'We are currently evaluating.'
Bloomberg's latest survey shows that the market generally believes the Trump administration will ultimately respond to market changes, despite previously attempting to blame issues left by Biden. The market perceives that the government has reached a 'pain threshold' where it is willing to pause the tariff offensive.
In addition to positive signals on trade, last Friday's non-farm payroll report was unexpectedly strong, further boosting market risk appetite and concluding a week of robust economic data, indicating that despite negative sentiment in the market, the U.S. economic fundamentals remain solid. In April, 177,000 jobs were added, and the unemployment rate remained at 4.2%, temporarily dispelling concerns about an imminent recession. However, the true impact of tariff policies may only be reflected in the data for May to June.
Moreover, based on the average pullback levels observed during past economic slowdowns, the implied possibility of an economic recession from the current stock market rebound is only about 8%, which is far lower than economists' estimates or the levels implied by the fixed income market.
In the fixed income market, the yield curve has flattened and has reverted to levels seen in February. The market expects only about a 30% chance of a rate cut in June, with only about 3 rate cuts anticipated for the entire year.
On the other hand, recent actual inflation data has continued to decline, coupled with positive signals from multiple central banks regarding maintaining U.S. Treasury positions, which has restored normalcy to the U.S. bond market.
In the cryptocurrency space, overall volatility has been low over the past week, with prices remaining flat. Although BTC once reclaimed the 96k level, it subsequently faced short-term profit-taking pressure. The volatility curve has flattened, indicating a lack of clear direction in the market, while actual volatility has fallen to its annual low.
If there are no significant macro asset movements, we expect cryptocurrency prices to continue consolidating in the short term, with a possibly bullish tendency in the medium term.
Over the past two weeks, although on a small scale, ETF inflows have continued to be positive, with cumulative net inflows nearly exceeding the highs seen earlier in the first quarter.
Looking ahead, with the SPX successfully reclaiming the losses from the liberation day, the 'easy' part of the rebound has been realized, and prices have re-entered a technical resistance area. Historically, 'bear market' rebounds (if this counts as one) are the most unstable and irrational for observers. However, this quick rebound has triggered some positive divergence signals, which may push prices back to January's highs.
We expect that this week's FOMC meeting will not have a significant impact on the market. There is currently no clear directional judgment, and price movements may be as unpredictable as flipping a coin. Ultimately, it will come back to corporate profit growth performance, which will further depend on economic realities and the subsequent impacts of tariffs.
So far, things are looking good. First-quarter profit growth is expected to approach an annual increase of 13%, almost double the initial expectations at the start of earnings season, marking the second consecutive quarter of double-digit growth.
If forced to choose, we believe the market's 'pain trade' still favors further price increases. After all, most observers currently cling to the narrative that tariffs are a 'done deal and cannot be reversed', but it is important to note that the 'dead cat bounce' in a bear market should not be taken lightly!
