SignalPlus Macro Analysis Special Edition: Unidirectional Upswing

Last week was a remarkable week, with the stock market and the fixed income market each showing different trends — the former continuously climbed to a historical high throughout the week, while the latter saw yields fall to cycle lows due to weak economic data.

After the weak non-farm payroll data, the University of Michigan Consumer Sentiment Index has become the latest disappointing soft data, paving the way for the bond market to price in a total of six interest rate cuts this year and next. The 10-year yield has fallen below 4% for the first time since April, while the 5-year yield is nearing its year-to-date low due to initial jobless claims hitting a nearly four-year low. This week’s Treasury auctions received enthusiastic responses across the board, as investors have fully returned to trading in a loose monetary cycle.

Despite the core CPI month-on-month increase reaching 0.346%, a new high since January, tariff-related pressures are beginning to seep in, potentially pushing up core inflation. The market still generally expects the FOMC to restart the rate-cutting cycle.

However, the Federal Reserve chose to focus on signs of a slowdown within the labor market. Recent benchmark revisions from the Bureau of Labor Statistics showed a downward adjustment that far exceeded expectations (-910,000 vs. expected -700,000), further reinforcing this trend.

In stark contrast, the stock market (as usual) paints a completely different picture: the S&P 500 index refreshed its closing record three times this week, with more than half of the constituent stocks trading above the 100-day moving average. Oracle's stunning earnings report revived the beleaguered AI sentiment, with all sectors in the green — semiconductor (+6%), banks (+3%), utilities (+3%), and software (+3%) all performed well. It is noteworthy that the S&P 500 index has rebounded more than 30% from its low in April, marking one of the strongest five-month gains in the past 50 years.

The inherent structure of the market is also strong, with implied volatility for all major macro asset classes falling to a new temporary low, led by government bonds.

The trading volume of S&P 500 options is more than 20% higher than the 12-month average, and data from sell-side dealers shows that retail trading volume accounts for about 12%.

Stock holdings have increased significantly, American households have become the main holders of US stocks, and have profited greatly from this round of gains.

Global market sentiment is similarly warming up, with the Hang Seng Index climbing to a four-year high, and the Taiwan Weighted Index setting historical highs for several consecutive weeks. Gold has become the best-performing asset so far this month, followed closely by macro hedge funds. From any dimension, all risk assets are indeed showing a pattern of broad gains.

In a frenzied atmosphere, corporate buybacks are advancing at an astonishing pace: the buyback scale reached $1.4 trillion in the first eight months, setting a new historical record. This is a 38% increase compared to the same period in 2024 (which itself was a record year), with the momentum described as a raging inferno.

Looking ahead, the focus will shift to the FOMC meeting. However, as the market generally expects the Federal Reserve to continue supporting risk sentiment after the Jackson Hole meeting, traders anticipate little surprise from the meeting. Citigroup data shows that the implied volatility for equity options on the meeting day is about 72 basis points, below the historical average of 84 basis points. The market may need to seek hawkish surprises from other areas.

Cryptocurrency rebounded over the past week, with Bitcoin filling the price gap of $110,000 to $116,000, but profit-taking still suppresses upward space, resulting in a slowdown in overall buying momentum. After experiencing a period of low capital inflow for 1.5 months, BTC ETF saw a significant rebound last week (around $2.3 billion), while the inflow momentum for ETH has significantly slowed down since the FOMO sentiment at the end of summer.

Disappointingly, the S&P 500 index rejected the inclusion of MicroStrategy in its components last week, despite technically meeting all the entry criteria. This indicates that the selection committee indeed has discretion and has declined to include the Digital Asset Trust (DAT) in the index. This is undoubtedly a blow to the momentum of short-term government bonds — their business model sustainability is being questioned, with MSTR and the entire DAT sector underperforming compared to BTC, and the net asset value premium continuing to shrink (in most cases, the discount has widened). This trend is expected to persist in the short term, with investors refocusing on crypto companies or mining enterprises with actual operational businesses, hoping that the weak momentum will not trigger downside convexity risks.

The current strong macro sentiment should continue to support cryptocurrency prices, but short-term performance is expected to lag behind overall stocks and risk assets. Wishing you successful trading during the FOMC meeting!