Morning Wrap: ASX 200 futures flat + Are stocks set for a pullback?

Major US benchmarks eased amid a relatively uneventful Friday session, CNN's Fear & Greed Index hits the highest level this year, Microsoft shares hit all-time highs on AI optimism, US consumer confidence bounces back to a four-month high, Wells Fargo suggests investors sell into strength and rotate back into Defensive sectors and a few interesting charts about where markets are at the moment.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 trends lower – Marking its first meaningful pullback this month (Source: TradingView)

MARKETS

• ASX 200 futures pointing towards a flat open

• S&P 500 lower, finished near worst levels from session highs of 0.5%

• US 2-year yield edges higher, closes at highest level since 10 March 

• Bullish focus points: Pain trade/FOMO, JPMorgan notes pickup in short covering, S&P 500 A/D line hits new high – marking improving breadth, disinflation theme supported by cooler US headline and produce price prints and potential Chinese stimulus

• Bearish focus points: Hawkish hold from Fed – medium dot plot for 2023 up 50 bps, Australian yield curve inverts for first time since 2008, AAII bull-bear spread spikes, Morgan Stanley flags earnings risk theme and China’s damp growth outlook 

• AAII bullish sentiment increased 0.6 percentage points to 45.2% for the week ended 14 June, the highest since November 2021 and above historical average of 37.5% 

• BofA’s Flow Show report notes US equity funds attracting US$38bn in the past three weeks, the strongest stretch since October 2022

• Tech attracted US$19bn in the past couple of months on AI optimism and marks the best run since March 2021

• Investor fears over recession threaten to overshadow rate hikes (Bloomberg)

• Bull market flags US$4.2tn option event: To chase gains or hedge bets (Bloomberg)

STOCKS

• Microsoft shares soar on AI optimism, hits fresh all-time record high (Reuters)

• Disney CFO Christine McCarthy stepping down (CNBC)

• Virgin Galactic set for its first commercial space tourism flight this month (CNBC)

• iRobot shares surge as regulators approve Amazon’s US$1.7bn takeover (CNBC)

• Adobe tops earnings expectations, says full-year will meet Wall St forecasts (CNBC)

ECONOMY

• US consumer confidence recovers more than expected, marks the highest reading in four months plus inflation expectations hit two-year low (Reuters)

• China's post-Covid recovery threatened by property weakness and lagging exports (FT)

• China expected to boost stimulus, notable for infrastructure (Bloomberg)

• China stimulus expected to remain targeted amid concerns over debt (Reuters)

• BoE set to raise rates to 15-year high, markets bet 6.0% rates by year end (Reuters)

Deeper Dive

Markets: Time to get more defensive?

A few takeaways from a Wells Fargo note by Senior Global Market Strategist Scott Wren:

• Inboxes jammed with: "Investors are asking if now is the right time to move from a more defensive posture towards something more assertive that anticipates a further rally in stocks."

• Stay defensive: "We reiterate our stance: We do not want to chase this rally. We don't believe now is the time to get less defensive."

• Recession & earnings risks: "We believe the economy will continue to slow and should eventually slip into a recession as the Federal Reserve keeps interest rates higher for longer. Even if the economy slows only to a stall speed, we anticipate that earnings growth is going to be tough to come by and is still a meaningful headwind for a nearer-term advance in stocks from current levels."

• Rotate back into value: "Given the strong performance in the Information Technology sector over the last 12 months, we recommend trimming positions in this sector and moving those funds into what we view as more attractively priced sectors such as Energy, Health Care and Materials."

Markets: Food for thought

I thought I'd post a few interesting charts and data points about where the markets are at the moment.

The S&P 500 is up 5.5% in June. It's experienced a powerful breakout but getting a little overextended. Last Friday marked a little pullback so it'll be interesting to see whether or not this is a well-supported and shallow pullback (aka a buying opportunity) or do we just slide back down to recent lows?

S&P 500 daily chart (Source: TradingView)

The market is getting a little complacent, with CNN's Fear & Greed Index currently sitting at 82 points or 'Extreme Greed'. These levels typically correlate with market tops.

A wise man once said "be fearful when others are greedy, be greedy when others are fearful."

Source: SentimenTrader

A TradingView user created a 'Net Liquidity' indicator comprised of the Fed Balance sheet less the TGA account and Overnight Reverse Repo agreements.

The S&P 500 is rallying on better liquidity conditions but can the red line continue to push higher amid the TGA refill and in the aftermath of the US banking crisis?

S&P 500 (Blue) vs. Fed Net Liquidity (Red) (Source: TradingView)

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: None

• Listing: None

Economic calendar (AEST):

No major economic announcements.