SignalPlus Macro Analysis Special Edition: Glass Half Full?

Due to the easing of the U.S. government's tough trade policy rhetoric, the SPX index closed last week with its first nine consecutive rises in over 20 years, recovering all losses since the Liberation Day crash.

Both China and the United States continue 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 us." In response, the Chinese side expressed that "an assessment is currently underway." Bloomberg's latest survey shows that the market generally believes that the Trump administration will ultimately respond to market changes, despite previously attempting to blame issues left by Biden. The market thinks that the government has reached the "pain threshold" at which it is willing to pause its tariff offensive.

In addition to positive signals released in trade, the non-farm payroll report published last Friday was unexpectedly strong, further boosting market risk appetite and concluding a week of robust economic data. This indicates that despite negative sentiments in the market, the fundamentals of the US economy remain solid. In April, the new employment population increased by 177,000, and the unemployment rate remained at 4.2%, temporarily alleviating concerns that the economy is about to fall into recession. However, the true impact of tariff policies may not be reflected until the data for May to June.

In addition, based on the average pullback levels during past economic slowdowns, the implied probability of recession from 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, returning to levels seen in February, with market expectations for a rate cut in June at only about 30%, and only about 3 rate cuts expected for the entire year.

On the other hand, recent actual inflation data has continued to decline, coupled with positive signals from central banks in multiple countries to maintain their positions in U.S. debt, which has brought the U.S. bond market back to a normal state.

In terms of cryptocurrency, there was little overall volatility in the past week, with prices remaining stable. Although BTC briefly recovered to the 96k level, it subsequently faced short-term profit-taking pressure. The volatility curve has flattened, indicating a lack of clear direction in the market for the future, while actual volatility has dropped to a year-to-date low. If there are no significant fluctuations in macro assets, we expect cryptocurrency prices to continue consolidating in the short term, with a possible bullish tendency in the medium term.

In the past two weeks, although the scale has not been large, the fund inflows into ETFs have continued to be positive, with cumulative net inflows nearly surpassing the peak earlier in the first quarter.

Looking ahead, with SPX successfully recovering from the decline after Liberation Day, the "easy" part of the rebound has been realized, and the price has re-entered the technical resistance area. Historically, the "bear market" rebound (if this counts) is the most unstable and irrational for observers; however, this rapid rebound has triggered some positive divergence signals, which may push the price back to the January highs.

We don't expect this week's FOMC meeting to have a big impact on the market, and with no clear direction at the moment, price action could be as unpredictable as a copper throw. Ultimately, it will come back to the performance of corporate earnings growth, which will further depend on economic realities and the subsequent impact of tariffs. So far, the situation is quite good, with first-quarter profit growth 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 double-digit growth.

If we must make a choice, we believe that the market's "pain trade" still indicates a further rise in prices. After all, most observers are still fixated on the rhetoric of "the wood has been cut, and it cannot be changed" regarding tariffs. However, it is important to note that the "dead cat bounce" in a bear market should not be underestimated!