Are New Market Highs Around the Corner?

Last week’s trading capped off a great stretch for investors as the S&P 500 finished higher on the week, marking the third weekly gain out of the past four. As stocks rallied throughout the week, the S&P 500 index was able to make several new short-term higher highs and higher lows, even seeing the index crack 6,000 intraday during Friday’s trading. Much of the bullish momentum behind stocks over the past week originated from two sources. Firstly, earlier in the week, longer term Treasury rates continued their plunge helping to remove the interest rate overhang on stocks. Later in the week Treasury yields reversed and jumped higher. However, it was a result of the stronger than expected May Non-Farm Payrolls report, which the market cheered. Stocks were able to look past the rising yields later in the week and rally further on evidence of a resilient labor market. While the index did retreat headed into the close, seeing the index wrap the week trading at exactly 6,000was a great sign for investors. The last time the index was trading above 6,000 was just a few days following the all-time high that we set just earlier this year. Seeing that we have regained this much ground is encouraging for investors. With that in mind, I still do anticipate that we will have a key resistance level to grapple with around 6,000. In the past few weeks, stocks have ricocheted between 6,000 and the rising 200-Day moving average. I expect this range to hold for a bit longer, absent a significant bullish catalyst, before stocks ultimately break out to the upside a bit later during the summer. After rallying so strongly off of the early April lows, I think stocks are broadly due for a digestion period before reaching new highs yet again. Yet, at current levels, we are only 2.45% away from the current ATH. Because of this, a few more decisively positive days and we could easily find ourselves sitting at new highs on the S&P 500. In the weeks to come it will be important to watch for closes above the 6,000 level as stocks look to take out the old high. When we begin stacking consecutive closes above 6,000, then I expect new all-time highs will be in shortly thereafter.

Building on last week’s strong bullish momentum, I want to briefly touch on the current technical setup for the market at the index level, and spoiler alert, it’s quite good. As mentioned previously, the S&P 500 is currently continuing its streak of making higher highs and higher lows as it has rebounded from the April lows. Additionally, the S&P still remains above its 200-Day moving average ever since crossing it on May 12^th. In the weeks to come I expect we will be on watch for a ‘Golden Cross’ as the 50-Day moving average will begin looking to cross above the 200-day, another widely tracked trend metric. Digging a bit deeper, looking towards the S&P 500-specific Advance/ Decline line, this index has begun to rise yet again and now looks on pace to break out to new highs. This is a strong sign of broad strength across the market. Yet, there is still some room for improvement here. Looking at a ratio chart of the S&P 500 headline index divided by the equal weighted version of the index, it shows that the headline S&P 500 has been outperforming the other quite strongly over the past few weeks. This indicates that the strongest performance that we have seen recently has not been experienced market-wide, but by a handful of sectors and industries that have led us out of the April decline. Should we see this current rally broaden out further and see more S&P 500 stocks recapture their own 200-day moving average, this will be a good sign for investors as it will help to raise the floor below stocks adding support for the rest of the year.

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Key Events to Watch For

Monday Trade Meeting w/ China
May CPI/ PPI Inflation Reports
June Fed Meetings Approaches

After a recent sparring between the Trump Administration and the Chinese government regarding trade policy, the two parties are set to continue in-person negotiations this coming week. On Monday a meeting is scheduled in London between U.S. and Chinese officials where the two delegations will continue to iron out details in an attempt to resolve our current trade dispute. Most recently the war of words between the two parties re-escalated as President Trump accused the Chinese government of “not holding up their end of the deal”, however, few details were provided. It was difficult for Wall St. to decipher what exactly this meant, as to date, other than the 90-day pause on reciprocal tariffs, virtually no details of ‘the deal’ that was reached in early May have been released. As investors anxiously await the outcome of Monday’s vital meeting, they will be hoping for some clear & tangible terms of a deal framework as well as further progress in working towards a final deal. If we can get this and walk away from Monday’s meeting with both parties remaining constructive with one another expect stocks to react well.

In terms of significant macroeconomic reports due this week, while we will not be swamped in fresh data points, there are a few key inflation reports which will be published this week. This week both the CPI & PPI inflation reports from May will be released and you can bet investors will be impatiently waiting for this fresh data. Over the past few months, cumulatively the key inflation reports have been showing some further progress in finally returning the inflation rate to the Fed’s target rate of 2.0% annually. While there is still a bit of work to do in this arena to sustainably return inflation to this range, it is quite close. The Fed will likely require several consecutive months’ worth of good inflation data before feeling comfortable resuming lowering the Fed Funds Rate. Recent employment data has remained resilient. Should this continue and if we can also keep stacking good inflation reports and making progress here, later this year, we could see the Fed decide to begin lowering rates and better yet for a good reason.

Staying on topic regarding the Fed, this upcoming week is a mandated quiet period for FOMC members as they head into their next Fed meeting, scheduled for June 17-18. Because of this, do not expect to hear any messaging from Fed members, however, there will be plenty of chatter around Wall St., regarding the Fed and their upcoming policy decision. Fed Fund’s Futures markets are essentially guaranteeing that the Fed will opt to keep their policy rate at current levels at this upcoming meeting. However, much of the intrigue about this meeting will be directed towards both Fed Chair Powell’s commentary at his press conference and the Fed’s quarterly S.E.P. report. The S.E.P. or Summary of Economic Projections is a collection of economic projections that are the FOMC member’s best guess for the coming few years at the time of the release. The S.E.P. includes the widely tracked ‘Dot Plot’, which includes each FOMC members’ forecast of interest policy and how many policy cuts or raises they see in the next few years. While this forecast can vary widely from quarter to quarter, it still receives a great deal of attention. This week, I expect to hear about this upcoming meeting even as it is more than a week away as market commentors debate about when the Fed should resume cutting rates.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,