S&P 500 futures are sitting above 3,000
The risk-on march is staying the course so far in European trading, with US futures steady and maintaining gains of nearly 2% on the session. For the S&P 500, that sets the stage for Wall Street to return today to test levels above its key daily moving averages:
Stocks have proven to be stunningly resistant in the month of May, brushing aside more than a handful of negative economic data releases and a rather rough earnings season. Not to mention that we have seen US-China tensions creep back up again.
This appears to be a market that takes everything with the view of 'the glass being half full', and that applies to negative headlines as well. In that sense, investors are running when it comes to good news and just jogging when it comes to bad news.
Cautious optimism? Perhaps so. But amid the rising tensions between US and China and the backdrop of more economic pain, you have to wonder how much this cheap money can really fuel the run higher in the equities market.
On the one hand, the more this carries on, the more one can argue that the disconnect with economic reality is growing. But with central bankers pledging that they will still do more and do whatever it takes to keep the party going, how does all this fit in?
Looking at the technical side of things, the recovery over the past two months has been quite remarkable to say the least. This was supposed to be a "bear market rally" (well, it could still turn out to be one).
But with the S&P 500 looking poised to break its key daily moving averages and the 3,000 level, it would just put a further dent into that argument.
The amount of monetary policy stimulus during this time is unprecedented, which brings the question: How powerful is this cheap money really?
One can argue that there has been no major setback to economic reopenings yet, and investors are focused on lockdowns ending for now. So, there's some positives at least.
The outlook is more uncertain though. What happens if the economy takes much longer to recover than initially thought? What happens when more businesses start biting the dust? What happens when more consumers start feeling the pinch of tighter financial conditions? What happens if US-China tensions continue to take a turn for the worse?
On that latter part, keep an eye on the daily yuan fixing. China is quietly responding to the recent tensions as we have seen the yuan fixed lower in each of the past four fixings since last Thursday. Today, the USD/CNY fix was at 7.1293.
There is still so much uncertainty out there, that it is scary to think that equity investors are so sure about where this is all headed. But again, is this really just cheap money talking?
