Bulls vs. Bears Scenario: AI Euphoria and Summer Momentum vs. Looming Downward Revisions

From a technical perspective, Goldman’s top trader Rich Privorotsky notes that May marks the largest monthly nominal net buying according to prime book data…

“While this signals a positive shift in sentiment, it’s worth noting that the four strongest buying days in May account for 81% of the monthly net buying, suggesting that the pace of purchases is uneven and points to signs of ‘stopped-in’ behavior amid the sharp market rally.” (PB)

Fundamentally, trading activity is slowing down…

• China’s Caixin PMI came in weak (48.3 vs. 50.7).
• ISM yesterday was moderately negative:

“The new export orders component fell by 3.0 points to 40.1 — the lowest since May 2020, while the import index dropped by 7.2 points to 39.9 — the weakest since May 2009.”

…but this comes as no major surprise — the market is largely ignoring it.

Overnight: Asia mostly flat; election results in Korea are pending; HSI bounces +1%.

The 10-year JGB auction was well received.

The dollar’s decline continues — this likely remains the most bullish factor for global equities.

Looser financial conditions are pushing global investors to seek alternatives to dollar assets / real assets as a hedge.

It seems the pressure-release valve is a combination of a weaker USD + higher long-end yields, driven by fiscal/tariff policy.

The market shows resilience, with the start of the month supporting equities.

There is some hope on the trade front:

Trump and Xi are “likely to speak soon to smooth out differences on trade,” says Treasury Secretary Scott Bessent. The US also wants “countries to submit their best trade offers by Wednesday.” (RTRS)

This could go either way: more deals or deeper rifts. So far, markets ignore trade risks, given the many last-minute U.S. concessions (TACO).
The EU warns it may fast-track retaliation if the US imposes 50% tariffs on steel/aluminum… There’s risk of overgeneralizing the China/UK deal to the EU.
For now, the market shrugs it off.

The oil market remains supported:

• Ongoing tensions in Iran talks
• Limited progress between Russia/Ukraine
• Alberta wildfires

In-depth:
Tensions between Russia and Saudi Arabia are rising — seen as a bearish signal:

“Saudi Arabia and Russia reached a difficult deal on OPEC+ policy on Saturday, with Riyadh pushing for accelerated production hikes while Moscow wants a pause, according to four OPEC+ sources. Tensions between the bloc’s two most influential members are rising after years of smooth cooperation.” (RTRS)

Short-term:
CTAs might trigger more buying due to still-short positioning, but I wouldn’t want to bet against Saudi Arabia.

For Equities:

Bullish Scenario = It’s Summer.
Recession fears are temporarily receding.
The market is in beta-chase / “raise net exposure” mode through May.
Vol compression, no external shocks, falling dollar, bonds in range, trade noise more rhetoric than real threat.
True bull case: this is 1997 again — AI/tech to grow exponentially (see how Waymo is dominating San Francisco — Google’s autonomous taxi service now completes more rides there than Lyft).

Bearish Scenario:
Discretionary investors are finally rotating back into risk.
EU markets have rallied sharply, FX as well, while earnings expectations downgrades are still to come — especially in Europe.
It’s unclear how much demand was pulled forward into early Q2… second half of the quarter could look very different (idiosyncratic — see GXI GY’s warning: “guidance cut for 2025 due to continued weak demand in the cosmetics sector” (BBG)).
The market is over-extrapolating the China–UK trade deal; the next phase may be far tougher.
Most importantly: the short-term technical demand outside of vol-control is nearly exhausted.