S&P 500 Cautiously Climbs as Gold, Oil Retreat on Monday

Also, 2-year T-note, gold, crude oil, and euro futures 

1. S&P 500 E-mini futures (/ES): +0.59% 

2. Two-year T-note futures (/ZT): 0% 

3. Gold futures (/GC): -2.50% 

4. Crude oil futures (/CL): -0.93% 

5. Euro futures (/6E): -0.15% 

Traders appear to be more comfortable with the contours of the Israel-Iran conflict, with geopolitical hedges–the war trade–underperforming on Monday.

Stocks are higher, while precious metals, energy, and safe haven currencies are all lower. The Federal Reserve’s communication blackout window is in effect, which means markets will have their attention on two tracks this week: earnings, with companies like Meta Platforms (META), Microsoft (MSFT), and Alphabet (GOOG/GOOGL) reporting in the coming days; and the releases of 1Q’24 U.S. GDP as well as the March U.S. PCE index, the Fed’s preferred gauge of inflation. 

A make-or-break week for stocks?

Choose your own adventure.

For bulls, the Dow Jones 30 (/YMM4) and Russell 2000 (/RTYM4) appear to be bottoming in a technical sense. For bears, the S&P 500 (/ESM4) and Nasdaq 100 (/NQM4) remain mired in technical downtrends. For the latter two, important levels have been reached: for /ESM4, the 5000.25 target of a head and shoulders pattern; for /NQM4, 17300 was achieved, the double top target.

Considering that the Magnificent 7 less Apple (AAPL) and Tesla (TSLA) is expected to have year-over-year earnings growth of +64.3% compared to -6% for the other 495 stocks in the S&P 500 in 1Q’24, this week seems to be a make-or-break week for stocks—especially if earnings disappoint. 

Energy prices and bonds

Energy prices are coming down but that’s not necessarily a positive for bonds, which had been enjoying the tailwind of the war trade in recent days.

Counterintuitively, if any positivity in bonds was tied to the Israel-Iran conflict, then a relaxation of those tensions should be negative for bonds. Indeed, even as Fed rate cut odds through the end of 2024 have increased since the end of last week, pressure remains across the curve. 

Precious metals move down

A sure sign that investors are shifting attention away from the Middle East, at least in the sense that fears of a widespread conflict are deteriorating, precious metals are down significantly on Monday. Both gold (/GCM4) and silver prices (/SIK4) are experiencing their worst single-day sessions since December 4, 2023. As was the case in December 2023, a sharp reversal of this magnitude might be a technical sign of a near-term top. 

The reversal seen in energy markets on Friday has carried over to this week. Crude oil prices (/CLM4) touched their lowest level since March 27, seeing a drop below the September 2023 high as well as the descending trendline from the June 2022 and September 2023 highs.

This very well be the makings of a top forming in /CLM4: oil is on pace to close below its daily 21-/34-EMA envelope for the first time since Feb. 7.  

Safe havens like the Japanese yen (/6JM4) remain under pressure as the war trade comes off the board, and the uptick in U.S. Treasury yields is affording little solace for everyone else other than the U.S. dollar.

With European Central Bank policymakers on the beat talking up the possibility for more than one rate cut in 2024, the gap between Fed-ECB expectations continues to grow in a disadvantageous way for the euro (/6EM4). 

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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