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Stocks steady in a quiet trading session

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Without any major economic data or events, the stock market was trading in a tight channel as investors tried to assess the probability of the Fed’s next move. There were negative sentiments around cryptocurrency, given SEC charges against Binance and Coinbase in a series of moves that targeted the sector.

S&P 500 barely moved, but more momentum pushed indices higher

There are signs of market optimism ahead of next week’s FOMC. The Dow, which has performed relatively weak this year, shrug off early losses to recover its strength.

The S&P 500 is the highlight, within 10 points of entering a new bull market. Interestingly VIX continued to drop drastically to 5.23% as it hit the lowest level since Feb 2020.

Giving life to S&P 500 is the regional bank stocks that jumped higher. ETFs covering regional bank counters like KBW and KRE jumped higher. This provides more breadth to the rally.

VIX at 2020 low – A concern or blessing?

With volatility entering a new low, the entire market feels another euphoria. History tells us to be cautiously optimistic. We are entering towards extreme greed territory region, and analysts are calling for what some call a “tactical correction”.

Any decline is seen as a buying opportunity rather than the birth of new selling for more losses. Indeed, based on Wall Street terms, a correction is when the stock market loses 10% from its most recent high, and a drop of 20% is a signal of a bear market.

With a strong labour market, more investors are hopeful for a gentle recession or soft landing. Nonetheless, with the S&P 500 trading around 18 times its aggregate EPS for next year and a yield that, compared to its index price, is about 5%, there is too narrow a risk premium in holding stocks when investors could get a 10-year Treasury yield at 3.7%.

Nonetheless, we maintain our cautious optimism.

What’s on the menu today?

There isn’t any major news arriving today. So we are off to another slow start for the day. However, major news could still impact the stock market. So do keep a conservative stance as the VIX and other indicators hint at a general overbought market, especially for Nasdaq.

It is 7 June, Wednesday 9 am in Singapore and 9 pm in New York. We have arrived at the mid-week. Let us continue our good trading practice, and see you tonight at our trading channel.

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