MARKET WRAP

Equities were down sharply today as Treasury yields continued their climb. The 10Y yield is now 4.59%. That’s higher than the April spike that saw the dialing back of the trade war. Selling pressure intensified mid-day on the 20-year Treasury auction but treasuries were already wary the past few days following the one-two punch of last Friday’s Moody’s downgrade and Washington’s new spending bill.

On the day: SPX -1.6%, QQQ -1.3% and IWM - 2.6%. The 10Y yield was up +0.10, Gold was higher, and DXY is back below 100 at $99.62. As mentioned here over the past few days we may have just seen a VIX bottom for now, it closed above 20 today. (more on that below).

After hours: Earnings, SNOW is higher by +6%, ZM is +2% (both very early).

• MRKT Call: Coverage of stocks pulling back amidst rising treasury yields. How far could it go? Alphabet’s AI rally, and earnings guidance numbers.

• RiskReversal Pod: An interview with Trevor Marshall, CTO and Co-founder of Current on the FinTech sector, M&A prospects, generative AI, higher yields' impact on the housing market, job cuts at major tech firms, and the retail sector's struggles.

MRKT MATRIX: TODAY’S TOP STORIES

• Dow tumbles 800 points as Treasury yields continue to push higher (CNBC)

• Johnson Says Agreement Reached on $40,000 SALT Cap Increase (Bloomberg)

• Target Cuts Outlook On Shopper Pullback, Hit to Retail’s Sales (Bloomberg)

• Lowe’s sticks by full-year forecast as sales from home professionals boost business (CNBC)

• Amazon CEO Andy Jassy says tariffs haven't dented consumer spending (CNBC)

• CoreWeave Surges Past Analyst Targets as Citi Doubles Theirs (Bloomberg)

• Nvidia CEO Urgers US to Ease AI Curbs After ‘Failure’ With China (Bloomberg)

• OpenAI’s Biggest Data Center Secures $11.6 Billion in Funding (WSJ)

• Former Apple Design Guru Jony Ive to Take Expansive Role at OpenAI (WSJ)

WHAT’S NEXT?

In yesterday’s note (Did the VIX just bottom?) we highlighted the potential for market structure to shift following today’s VIX expiration following closely behind last Friday’s very large equity options expiry. For much of the past two weeks, the market had benefited from supportive flows tied to options positioning, helping to underpin the bid in equities and drive the V reversal higher than most market participants expected. With both the VIX and equity options expirations now behind us, some of this structural support may have cleared, leaving equities slightly more vulnerable. A few days in a row of “buy the dip” not working also rids the market of the short covering, as they do not have to chase as aggressively into the open or close.

Today’s decline and the uptick in the VIX, which is now over XXX, could signal that volatility is poised to return, at least in the near term. And speaking of the near term, SPX short duration vols are back over 20 after being as low as 13-15 earlier this week. There was virtually no put buying in the major indices on this last leg of the rally, and a few days in row of declines would likely change that behavior, further driving up volatility pricing.

We still have a 3 day weekend ahead which could dampen option pricing into Friday but if the treasury market continues its volatility, expect equity vol to pick up as well.

Thursday May 22:

• Pre-Market: ADI 4.8%, AAP 11.5%

• 8:30am - Initial Jobless Claims

• 9:45am - S&P Global PMI

• 10am - Existing Home Sales

• After Hours: ADSK 5.3%, WDAY 7.2%, ROST 5%, DECK 11%

TODAY’S EPISODES

Watch MRKT Call’s newest episode: Stocks Fall, Yields Spike: Now What?

• Analysis: SPX, SP e-mini, TLT, US10YY, GOOGL, TMDX, BTC, META, MSFT, Dollar DXY/IFUS, CRWV, TGT, TOL, XHB, UAL, UNH 

• Chart of the Day: Stocks Struggle When Yields are This High

• Call of the Day: HSBC downgrades UNH

• John Butters Report: A high percentage of reporting companies so far have maintained their guidance, especially compared to covid year.

• Your Questions Answered:

  • Chris L - Is this selling organized and programmed?

  • Aaron Pugh - PEP, double bottom?

  • Gary Webb - Today’s treasury auction, pre-arranged favorable outcome?

Learn more about our sponsor, CME Group.

Watch RiskReversal Podcast’s newest episode: How Strained Is The American Consumer?

Dan Nathan and Guy Adami discuss major market trends and delve into rising yields, a significant down day for the S&P 500, and recent retail earnings. The conversation highlights key concerns around the tax bill and its potential impacts. The episode features an interview with Trevor Marshall, CTO and Co-founder of Current, who shares insights on the FinTech sector, M&A prospects, and the increasing application of generative AI in various industries. Key takeaways include discussions on higher yields' impact on the housing market, job cuts at major tech firms, and the retail sector's struggles, particularly with companies like Target and TJ Maxx. The episode wraps up with a look at Google's strategy in advancing generative AI, the geopolitical implications of Nvidia's growth, and the transformative role of AI in both consumer and business landscapes.

Learn more about our sponsor Betterment and iConnections.

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