The inventory market boils down to at least one query this week, Goldman’s buying and selling desk says

The inventory market rallied final week, overcoming disappointing megacap earnings as Fed pivot hopes drove a loosening of economic situations.

The S&P 500 (SP500) (NYSEARCA:SPY) gained 4% and even the tech-heavy Nasdaq 100 (NDX) (NASDAQ:QQQ) rose 2.1%. Extra insulated from the megacap weak spot, the Dow (DJI) (NYSEARCA:DIA) jumped 5.7% and small-caps surged, with the Russell 2000 (RTY) (NYSEARCA:IWM) up 6%.

“It’s uncommon new bull markets begin with the most important members of the index gapping down as they did this week,” Matt Fleury of Goldman Sachs fairness gross sales wrote in a word. “And that is whereas nominal US GDP is operating at +11%?! What do numbers appear to be in a slowdown?”

Easing world central financial institution rhetoric was the macro story and also you “merely cannot be brief that,” Fleury mentioned.

Whether or not the rally continues this week hinges on the Fed (not the choice with 75 foundation factors baked in, however on what Chairman Jay Powell has to say).

Because the Wall Road Journal story from Nick Timiraos in regards to the Fed debate future hike dimension, “we now have seen one the most important 5d easing of economic situations this century,” Fleury mentioned. (See chart at backside.)

“Between this market soothe saying from officers, together with easy occasion threat premium popping out of vol markets because the ECB, BoJ and earnings cross, there was a big discount within the fairness vol curve this week.”

“The main target now shifts firmly to Powell. Is he happy with this easing of economic situations? That’s the solely query that you must ask your self.” (Emphasis added.)

Fundamentals will not be good, Fleury famous.

“Maybe probably the most eye-opening merchandise for me within the tech earnings this week was YoY change in working margin this quarter: Apple (AAPL) -0.9%, Amazon (AMZN) -2.4% Alphabet (GOOG) (GOOGL) -7.5%, Meta (META) -14.0%, Microsoft (MSFT) -1.7%,” he mentioned.

“It’s my expectation from right here {that a} decrease a number of is connected to corporations that are rising at a slower fee,” he mentioned. “That has been a characteristic of this bear market, and I anticipate this instance to be no completely different. MSFT nonetheless didn’t fall from grace this week, this began within the spring. Should you missed it, you aren’t paying consideration.”

Whereas fundamentals are poor, technicals are good and the latest transfer “is technicals successful out as vol compresses, non-economic consumers are compelled to purchase, whereas the basic image deteriorates however is extra of a medium time period story,” Fleury mentioned. “I’m previous and grizzled sufficient to know that when Nick (goa)T tweets that the Fed is tapping the brakes, you get out of the best way, even when you nonetheless imagine the final word path for shares is decrease. I am ready to see if Jerome blesses that easing of economic situations.”

“If J Powell offers the inexperienced mild subsequent week and doesn’t ship a Jackson Gap kind efficiency, there may be little or no to cease this transfer from a technical standpoint. A physique in movement stays in movement. Finally it is going to be an exquisite shorting alternative, however there isn’t any level in kissing the freight prepare if JPow is waving a inexperienced flag.”

Fundstrat’s Tom Lee says the Fed can dwell with S&P 4,500.