TradingEdge Weekly for Jun 5 - Breadth divergence, hedge unwinding, shrinking ERP, and post-surge outlook
Key points:
- S&P 500 hits new highs while market breadth deteriorates to record-weak levels.
- Hedging activity evaporates across equity, credit, and options markets.
- Continued unemployment claims trend lower - a historically favorable signal.
- Macro Index Model hits a five-year high while Consumer Confidence plunges to all-time lows.
- Equity Risk Premium whipsaws at a multi-decade extreme alongside an elevated Stock/Bond Ratio.
- S&P 500 gained 16% in April and May combined - a rare occurrence that historically precedes further upside.
House view:
- Stocks:
- Short-term: Modestly bullish. U.S. equities saw dramatic sector rotation amid easing geopolitical premiums from prospective Middle East peace accord. Funds rotated out of overheated AI chip names weighed down by soft earnings guidance into undervalued large-cap financial, traditional blue chips and small-cap issues. Dow hit fresh all-time highs while Nasdaq edged lower on semiconductor pullback. Healthy VIX and falling Treasury yields underpinne