SignalPlus Macro Analysis Special Edition: One-Way Upward

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

Following the weak non-farm payroll data, the University of Michigan Consumer Confidence Index became the latest disappointing soft data, paving the way for the bond market to price in six rate cuts this year and next. The 10-year yield fell below 4% for the first time since April, while the 5-year yield approached its year-to-date low due to initial jobless claims hitting a nearly four-year low. This week, Treasury auctions received enthusiastic responses, as investors fully returned to a loose cycle of trading.

Despite the core CPI rising by 0.346% month-on-month, reaching a new high since January, tariff-related pressures beginning to seep in may push core inflation higher, the market still generally expects the FOMC to restart the rate cut cycle.

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

In stark contrast, the stock market (as usual) painted a completely different picture: the S&P 500 index refreshed its closing record three times this week, with over half of its constituents trading above the 100-day moving average. Oracle's stunning earnings report revitalized the beleaguered AI sentiment, with all sectors showing gains --- --- semiconductors (+6%), banks (+3%), utilities (+3%), and software (+3%) all performed well.

Notably, the S&P 500 index has rebounded over 30% since its April low, marking one of the strongest five-month gains in the past 50 years.

The underlying market structure is also strong, with implied volatility across all major macro asset classes falling to phase lows, led by Treasuries.

S&P 500 options trading volume is over 20% higher than the 12-month average, with sell-side dealer data showing that retail trading volume accounts for about 12%.

Equity holdings have increased across the board, with American households becoming the main holders of U.S. stocks and profiting significantly from this round of gains.

Global market sentiment is also heating up, with the Hang Seng Index climbing to a four-year high and the Taiwan Weighted Index hitting historical highs for several consecutive weeks. Gold has become the best-performing asset so far this month, closely followed by macro hedge funds; regardless of the dimension examined, all risk assets are indeed showing a broad-based rally.

In this fervent 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 fire.

Looking ahead, the focus will shift to the FOMC meeting. However, as the market generally expects the Federal Reserve to continue supporting risk sentiment following the Jackson Hole meeting, traders anticipate that the meeting will not present any surprises. Citigroup data shows that equity options imply a volatility of about 72 basis points on the meeting day, below the historical average of 84 basis points. The market may need to look for hawkish surprises from other areas.

Cryptocurrencies rebounded over the past week, with Bitcoin filling the price gap of $110,000 to $116,000, but profit-taking still suppresses upward momentum, and overall buying momentum has slowed. BTC ETFs saw a significant rebound last week after 1.5 months of low inflows (about $2.3 billion), while ETH inflow momentum has significantly slowed since the summer's FOMO sentiment.

Disappointingly, the S&P 500 index refused to include MicroStrategy in its constituents last week, despite technically meeting all entry criteria. This indicates that the selection committee indeed has discretion and has rejected the inclusion of Digital Asset Trust (DAT) in the index.

This is undoubtedly a blow to the momentum of short-term Treasuries --- --- the sustainability of its business model is being questioned, with MSTR and the entire DAT sector underperforming BTC, and the net asset value premium continuing to shrink (in most cases, the discount is expanding). This trend is expected to continue in the short term, as investors will refocus on crypto companies or mining firms with actual operational businesses, hoping that weak momentum will not trigger downside convexity risks.

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