JP Morgan ponder the 'why' of the strong rally in equities:
- Short covering as folks re-assess the macro environment. Many believe that the Fed re-centres from inflation to growth and if growth continues to disappoint that brings the end of the tightening cycle earlier
- Better than expected earnings from MegaCap Tech in an environment that looks like Q2 will be the worse quarter of the year
- The retail bid appears to have returned
- A ton of money is on the sidelines, so light volume and low liquidity. This is exacerbating the move higher but we have not seen many institutional investors chase this rally. Instead, many believe this is another bear rally
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And, outlook:
- At some point, that money on the sidelines is pulled into the market but many investors think we need to retest, and make new lows. Look for a "flush day" with VIX thru 40 and SPX down 4-5% as part of forming that bottom
- In terms of Tech outperformance, if we have seen the highs in yields (3.47% on June 14) and we're going to be in a low growth environment then MegaCap Tech is arguably the best long irrespective of the shape of the yield curve
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