• Wall Street remains buoyant near record highs

• Solid Q1 earnings aid, focus shifts on inflation and Fed outlook

• Volatility remains historically low as bears get repeatedly burned

Stock rally shows no signs of easing

This year has been sensational for the US equity markets as macroeconomic data out of the US have been constantly reinforcing the soft-landing narrative. The three major US indices have stormed to consecutive record highs despite market expectations shifting from six cuts in the beginning of the year to little more than one at the moment of writing.

However, the strong upside trajectory has not been a straight line. Stocks experienced significant losses in April as market participants warned of an overstretched rally, but the pullback quickly faltered as corporate results started to repeatedly surprise to the upside and Treasury yields eased substantially.

Nvidia’s stellar Q1 earnings was the finishing touch, restating once again that growth in AI space has yet to peak. Combining the positive GDP and corporate earnings outlook, inflation remains the last piece of the puzzle for the Fed to begin cutting rates.

Bears have lost faith

This relentless rally to uncharted waters would be expected to increase volatility in the equity world, but surprisingly this has not been the case. On the contrary, the CBOE Volatility Index (VIX), Wall Street’s fear gauge, fell to its lowest level in more than four years last week, suggesting that investors remain confident that the rally could extend even further.

This phenomenon could be explained by the fact that every recent attempt for a downside correction has been shuttered, leading to severe losses for the bears. Clearly, markets are no longer laser-focused on the timing of rate cuts as long as the Fed begins easing its monetary policy sooner or later. Hence, the major risk moving forward is an exogenous event that could derail the loosening process and spoil the soft-landing scenario.

Technical levels to watch

From a technical perspective, the US 500 stock index has been recording consecutive all-time highs in 2024, repeatedly defying overbought signals. Considering that we are currently trading at all-time highs, the Fibonacci extensions of the latest severe downtrend could provide some potential future resistance areas.

To the upside, the price could revisit its all-time high of 5,350 before it challenges 5,481, which is the 150.0% Fibonacci extension of the 4,817-3,489 downtrend.

Alternatively, bearish actions could encounter support at the 123.6% Fibo of 5,130 ahead of the latest deflection point of 4,925.