Technical

The S&P 500 rally broadened in July, lifting this year’s laggards. Surging long yields are altering the macroeconomic backdrop, as the market absorbs that monetary policy will stay restrictive for a long time. Yet, a move down in yields is more likely than a move up over a tactical horizon. Q2 earnings were better than expected but investors were unimpressed – the good news is already priced in. The market is overvalued and is close to being overbought, which makes it vulnerable to disappointment.

Investors remain cautious about the US economy and still have significant cash that needs to be put to work which could extend the rally further. Earnings rebound later in the year will be supported by rising sales growth and surging earnings of the Magnificent Seven. A restocking cycle, and a pickup in freight activity support transports. Upgrade Transports to an overweight.

In this report, we evaluate the breakdown in the dollar and next moves in the DXY, based on fundamentals, historical precedents, and technical patterns over the last few years.

In this report, we evaluate the breakdown in the dollar and next moves in the DXY, based on fundamentals, historical precedents, and technical patterns over the last few years.

This week’s report examines three potential catalysts that could push Treasury yields meaningfully higher within the next few months. We also consider the rebuild of the Treasury’s cash holdings and its implications for the Fed’s balance sheet policy and financial markets.