The end of QT matters more for bitcoin than today's rate cut at this stage in the cycle.If we get anything other than a dovish Fed announcing the end of QT with further support on standby, bitcoin is likely to have a visceral reaction. ...

Even if you believe that the Fed is easing into an economy on its last legs, why worry?In 2008, it took 9 months after Bear Stearns to start QE.In 2020, it took 2 weeks.In 2023, just 2 days to unveil BTFP after Silicon Valley Bank collapsed.The Fed's crisis response time has gone from 9 months to 2 days over the last 17 years.If liquidity seized up tomorrow, they'd roll out another acronym facility to backstop hundreds of billions in distressed assets, either through direct-purchase programs or through pled ...

Core Viewpoint - Fundstrat's Tom Lee expresses optimism about the U.S. economy, highlighting the impact of AI investments and a dovish Federal Reserve as key drivers of investor confidence [1][2]. Group 1: Economic Factors - Massive investments in the artificial intelligence sector and the Federal Reserve's dovish stance are identified as "powerful tailwinds" for the economy [2]. - The Fed's nine-month pause on interest rate cuts until September has kept the ISM Manufacturing PMI below 50 for 31 consecutive months, indicating a prolonged contraction in the manufacturing sector [2][4]. Group 2: Market Sentiment - Lee notes that a government shutdown disrupts economic activity and weakens confidence, which may lead the Fed to adopt an even more dovish stance, potentially allowing stocks to rally further [5]. - Despite a 30% rally in stocks, investor sentiment remains skeptical, leading to what Lee describes as "the most hated V-shaped rally" [5]. Group 3: Contrasting Views - Lee counters Federal Reserve Chair Jerome Powell's caution regarding stock valuations, suggesting that such caution is typical of the central bank and should not be viewed as a warning sign [6]. - This bullish outlook contrasts with warnings from hedge fund manager Paul Tudor Jones about a potential "blow off" rally, drawing parallels to the late 1990s dotcom surge [7].

Inflation & Monetary Policy - The market is anticipating the release of PII data as a potential directional signal for the more significant CPI data, which will influence expectations for the Federal Reserve's upcoming meeting [2][3] - The market believes the Federal Reserve's upcoming meeting will likely be dovish, providing support for both stocks and bonds [5][8] - The market expects any inflation-related news to only cause a short-term shock, with focus quickly returning to the Federal Reserve's dovish stance [5] Geopolitical Risk - The market is currently dismissing news of a Russian drone incursion into Poland, with minimal impact on market sentiment [6][7] - Despite negative geopolitical news from Europe, the overall backdrop remains supportive for stocks due to positive earnings and expectations of a dovish Federal Reserve [8] Stock Market & Administration Influence - The market believes the influence of the US administration on the stock market is less immediate than commonly perceived, requiring a significant drawdown before intervention [10][11]

Investment Rating - The report maintains a neutral asset allocation stance while focusing on diversification across regions and styles [3]. Core Insights - Increased expectations of a more dovish Federal Reserve and de-escalation of geopolitical tensions have created a favorable "Goldilocks" environment for markets, supporting growth pricing across various assets [1][2]. - The report highlights a broad geographical bullish growth repricing, with equities outperforming bonds and cyclicals outperforming defensives [1]. - Consensus EPS revisions have turned less negative recently, with positive revisions noted for the US market, indicating improved expectations for equity fundamentals [2]. Summary by Sections Market Conditions - The report indicates that markets are pricing in a more dovish Fed, with expectations for a rate cut brought forward to September and a reduced terminal rate forecast of 3-3.25% [1][7]. - The labor market data expected this Thursday is deemed critical for sustaining positive momentum, with economists forecasting 85k for non-farm payrolls, below the consensus of +113k [1]. Earnings Outlook - The upcoming Q2 earnings season is highlighted as a key focus, with a relatively low bar for EPS growth set at 4%, down from 12% in Q1, and insights expected on corporate adjustments to increased tariff rates [2]. Asset Allocation - The report suggests that reverse dispersion trades may be attractive as a macro hedge against potential growth deterioration over the summer [2]. - Recommendations include option hedges and specific strategies such as USD HY puts/CDS payers to hedge against stagflationary shocks [6]. Performance Metrics - The report provides forecasts for various asset classes, indicating expected total returns and downside risks for equities and bonds over different time horizons [18]. - The S&P 500 is projected to have a total return of -4.1% over 3 months, with a potential upside of 6.6% over 12 months [18]. Risk Appetite - The report notes a rebound in the Risk Appetite Indicator to 0.3, reflecting increased risk appetite among investors [1][26]. - Implied equity correlations have been falling, indicating expectations of more dispersion in the earnings season and a fading macro risk environment [2][15].

Market Sentiment & Geopolitical Impact - Markets initially reacted to geopolitical events with de-risking, but the limited surge in oil prices suggests a lower risk of straits being closed [2][5] - Stress tests have been passed by the market, indicating potential for stocks to perform well [4] - Geopolitical events have not significantly altered growth and inflation expectations for US stocks, bonds, and the dollar [6] Inflation & Monetary Policy - US CPI, calculated on the same basis as the ECB's core CPI (excluding housing), is lower than Europe's, suggesting a potential dovish tilt from the Federal Reserve [6][7] - Inflation expectations are currently above CPI, which could lead to positive surprises if inflation is lower than expected [12] Market Dynamics & Investment Strategy - Consumer discretionary sector is leading market gains, while energy lags [1] - There are echoes of 2021 with some stocks receiving bizarre valuations, but institutional investors are less risk-taking due to macro uncertainties [8][9] - Retail investors, who bought the dip in April, are driving speculative activity, while high net worth individuals and institutions remain cautious [10] - Macro conditions are improving with better visibility on tariffs and regulation into 2026, supporting a bullish outlook [11] - Businesses have shown resilience, with earnings performing better despite potential economic weakening [12]