Key Takeaway
The S&P 500 is holding technical support, driven by strong earnings growth and breakouts on the individual stock level. However, the uptrend in equities is narrowing, which could signal a seasonal pullback. We are monitoring overbought signals on the stocks/bond (SPY/TLT) ratio similar to previous episodes of volatility spikes.
Treasury bonds still offer downside protection, especially as positioning is net-short despite the recent bounce in yields (click here for our outlook on Treasury yields). A break of technical support in the S&P 500 and the SPY/TLT ratio could trigger more defensive positioning in portfolios. For now, volatility is subdued and stocks are in a long-term uptrend relative to bonds, which suggests pullbacks will be limited.
SPY/TLT Ratio – Monthly Chart
