SignalPlus Macro Analysis: From the Liberation Day Crash to Nine Consecutive Rises, what is different about this Rebound?

Original Title: “SignalPlus Macroeconomic Analysis Special Edition: Glass Half Full?”

Original source: SignalPlus Chinese

Due to the U.S. government’s softened rhetoric on its tough trade policies, the SPX index closed last week with its first nine consecutive gains in over 20 years, regaining all the losses since the Liberation Day crash.

Both China and the United States are continuing to take steps towards restarting trade negotiations and easing relations. Recently, both sides have made adjustments to their trade departments and negotiators. The Chinese side stated: “The U.S. side has recently taken the initiative to convey messages to the Chinese side through relevant channels multiple times, hoping to engage in talks with China.” In response, the Chinese side expressed that “an assessment is currently underway.”

A recent Bloomberg survey shows that the market generally believes the Trump administration will eventually respond to market changes, despite previously attempting to blame issues left by Biden. The market believes the government has reached a “pain threshold” where it is willing to pause its tariff offensive.

In addition to positive signals released in trade, last Friday’s non-farm employment report was unexpectedly strong, further boosting market risk appetite and marking the end of a week of robust economic data, indicating that despite negative sentiment in the market, the fundamentals of the U.S. economy remain solid. In April, 177,000 new jobs were added, while the unemployment rate remained at 4.2%, temporarily alleviating concerns about an impending economic recession. However, the true impact of the tariff policy may not be reflected until the data from May to June.

In addition, based on the average pullback levels during previous economic slowdowns, the implied probability of an economic recession given the current stock market rebound is only about 8%, which is much lower than the estimates of economists or the levels implied by the fixed income market.

In the fixed income market, the yield curve has flattened and has returned to the levels seen in February. The market expects that the possibility of a rate cut in June is only about 30%, with an expectation of only about 3 rate cuts 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 their positions in US Treasury bonds, which has restored normalcy to the US bond market.

In terms of cryptocurrency, the overall volatility over the past week has been low, with prices remaining stable. Although BTC briefly recovered to the 96k level, it subsequently faced short-term profit-taking pressure. The volatility curve appears flat, indicating a lack of clear direction in the market for the future, while the actual volatility has dropped to a year-to-date low.

If there are no significant changes in macro assets, we expect cryptocurrency prices to continue to consolidate in the short term and may maintain a slightly bullish tendency in the medium term.

In the past two weeks, although the scale is not large, the fund inflow into ETFs has continued to be positive, with the cumulative net inflow nearly exceeding the high point earlier in the first quarter.

Looking ahead, with SPX successfully recovering from the drop after Liberation Day, the “easy” part of the rebound has already been achieved, and prices have re-entered the technical resistance zone. Historically, “bear market” rebounds (if this one counts) are the most unstable and irrational for observers, however, this rapid rebound has also triggered some positive divergence signals that may push prices back to the January highs.

We expect that this week’s FOMC meeting will not have a significant impact on the market, and there is currently no clear directional judgment; price movements may be as unpredictable as flipping a coin. Ultimately, it will still depend on the performance of corporate profit growth, which will further depend on economic realities and the subsequent impact of tariffs.

So far, the situation is good, with profit growth in the first quarter expected to approach an annual increase of 13%, nearly double the initial expectations at the beginning of the earnings season, and it will be the second consecutive quarter of achieving double-digit growth.

If forced to make a choice, we believe the market’s “pain trade” still points to further price increases, after all, most observers are still fixated on the argument that “the wood has already been cut, and it cannot be undone” regarding tariffs. However, it is important to note that the “dead cat bounce” in a bear market should not be underestimated!

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