JPMorgan's Jason Hunter on Market Momentum, Technicals, and Treasury Yields

Market Momentum and Potential Pullback

• 💡 The market has experienced an impressive rally since early April, characterized by persistence, breadth, and magnitude, but momentum has slowed.
• ⚠️ A loss in momentum, narrowing breadth (stocks above averages, 52-week highs), and stalled global indices suggest rally exhaustion.
• 🎯 Momentum divergence indicates a bias for the market to correct over the short term, potentially a 5% pullback down to 5,800-5,700.
• 📈 This pullback is expected to be well-supported due to positive summer seasonals.

Market Resilience and Positioning

• 🧠 The market's resilience, despite negative technical setups and recent headlines, is attributed to investor positioning.
• 📉 The speculative community is not overly long, and trend-following CTAs are only somewhat long.
• 🧑‍💻 Retail investors, who have powered the rally, are unlikely to sell ahead of a correction, suggesting corrections will need to be initiated by speculators.

Treasury Market Insights

• 📊 The front end of the Treasury market is range-bound, with the Fed priced for several rate cuts.
• 📉 The long end of the curve shows potential for steepening due to a loss of US exceptionalism and questions around fiscal discipline.
• 📈 Bonds have formed a multi-week yield top pattern, and a break above 4.80 on the 30-year bond could lead to a significant impulse to lower yields (4.60-4.55).
• 🚀 This Treasury setup is considered out of consensus and exciting from a technical perspective.

Tactical Market Views

• ⚠️ Deep cyclicals, including materials and energy, appear vulnerable, with base metals showing signs of exhaustion and rolling over.
• 📉 Small caps are also contained below their breakdown zone and are considered more vulnerable.
• 🌟 Investors appear to be crowding back into quality and large-cap tech names (Mag 7, AI stocks), which are expected to hold up well.