As we kick off a new trading week, Rebecca Cheong of UBS is optimistic about the prospects of a swift recovery for US equities come Monday. Despite potential early hiccups, the internal dynamics of the equity market remain robust, suggesting a resilient S&P by day’s end.

April has already seen its fair share of market tests, with significant events like Fed Chair Jerome Powell’s speech on the 4th and a surprising US CPI report on the 10th. Both instances prompted modest spikes in trading volume, indicating moderate sell-off activities but nothing that the market couldn’t handle. Interestingly, retail investors have been quick to buy on dips, demonstrating confidence in the market’s strength.

The resilience of the market is further underscored by the nature of recent sell-offs, which appear to be more about buyers momentarily stepping back rather than rushing for the exits. This pattern of behavior signals a market that is not easily swayed by fleeting uncertainties but is instead waiting for opportune moments to re-engage.

Looking ahead to Monday, Cheong notes that while the developments in the Middle East are concerning, they are unlikely to derail the overall market stability. She anticipates some initial risk-control selling, to the tune of $40-50 billion, which may temporarily align with Commodity Trading Advisor (CTA) selling patterns. However, these are expected to give way to recovery later in the trading session.

Moreover, the volatility index (VIX) is projected to see a significant reduction. Currently, the VIX Cross-Asset Rank stands high at 70%, suggesting heightened market sensitivity, whereas the oil volatility (OVX) Cross-Asset Rank remains low at 28%, pointing to undervaluation in that sector.

In essence, Monday’s trading session might start on shaky grounds, but the underlying strength of the market dynamics and strategic buying behavior of investors indicate a likely rebound before the day concludes. This resilience is a testament to the solid foundational elements of the US equity markets, which continue to navigate through periodic turbulence with a steady hand.