17/06/2024
Stoxfly Weekly Trader's Outlook
Stocks Set for Weekly Gains Courtesy of Lower Yields and Mega-Cap Tech—Time to Take a Pause?
Stocks are on track to notch weekly gains, driven by benign inflation data and lower yields. However, technicals are flashing overbought signals, which may indicate some healthy mean-reversion is on the horizon.
The Week That Was
Last week, Joe Mazzola predicted additional choppy, sideways consolidation price action following a strong Nonfarm Payrolls report. This week, despite some choppy trading driven by several economic catalysts, the SPX is up about 1.5%, thanks to cooler-than-expected inflation data (CPI/PPI) and a corresponding 20-basis-point drop in both 10-year and two-year Treasury yields.
The Federal Reserve's dot plots suggested only one rate cut this year versus a prior expectation of three. NVIDIA also started trading on a 10-for-one split adjusted basis and gained around 8% this week. Apple received an "AI-boost" after its Worldwide Developers Conference (WWDC), hitting fresh all-time highs. Broadcom added to the tech momentum with a healthy beat/raise and announced a 10-for-one stock split. The S&P 500's 14% gain in 2024 is largely due to mega-cap tech, while the S&P 500 Equal Weight (SPXEW) is up just 3.2%. This trend highlights the ongoing digitization of the economy and investors' appetite for growth in bull markets.
Outlook for Next Week
As of 3:00 p.m. ET, stocks have recovered off the lows of the session with Information Technology and Communication Services leading the sectors. Concerns heading into next week include overbought signals in the technology space and a lack of near-term catalysts following the NVDA split, Apple WWDC, and FOMC meeting. My forecast for next week is "slightly bearish," noting the current risk/reward setup is skewed to the downside.
Other Potential Market-Moving Catalysts:
Economic:
Tuesday (June 18): Business Inventories, Capacity Utilization, Industrial Production, Net Long-Term TIC Flows, Retail Sales
Wednesday (June 19): MBA Mortgage Applications Index, NAHB Housing Market Index
Thursday (June 20): Building Permits, Continuing Claims, Current Account Balance, Housing Starts, Initial Jobless Claims
Friday (June 21): EIA Natural Gas Inventories, Existing Home Sales, Leading Indicators
Earnings:
Monday (June 17): Lennar Corp. (LEN), La-Z-Boy Inc. (LZB)
Tuesday (June 18): Patterson Companies Inc. (PDCO), Cognyte Software Ltd. (CGNT), America’s CAR-MART Inc. (CRMT), KB Home (KBH)
Wednesday (June 19): Steelcase Inc. (SCS)
Thursday (June 20): Accenture (ACN), Kroger Co. (KR), Darden Restaurants (DRI), Jabil Inc. (JBL), Commercial Metals Co. (CMC), GMS Inc. (GMS), Winnebago Industries Inc. (WGO), Smith & Wesson Brands Inc. (SWBI)
Friday (June 21): FactSet Research Systems Inc. (FDS), Carmax Inc. (KMX)
Economic Data, Rates & the Fed:
This week's economic data highlights:
Tuesday (June 11): NFIB Small Business Optimism at a year-to-date high of 90.5
Wednesday (June 12): CPI data below expectations; Fed Funds Rate unchanged; dot plot suggests one rate cut in 2024
Thursday (June 13): PPI data below expectations; weekly jobless claims at a nine-month high
Friday (June 14): University of Michigan Consumer Sentiment fell to a seven-month low
Bond yields are down significantly week-over-week, with 10-year and two-year yields at fresh two-month lows. Treasury bond auctions were well-received, indicating stability for the bulls. Market hopes for Fed rate cuts increased, driven by cooler-than-expected inflation data.
Technical Take
S&P 500 Index (SPX - 13 to 5,420)
The S&P 500 hit another record closing high, driven by mega-cap tech outperformance. The Relative Strength Indicator (RSI) is above the 70 level, signaling potential for a pullback. June seasonality has historically been weak for the SPX, suggesting a near-term technical translation: slightly bearish.
Nasdaq Composite Index ($COMPX - 11 to 17,655)
The Nasdaq Composite's RSI is at 76, indicating a stretched upside and susceptibility to a pullback. Nvidia's RSI at 80 suggests caution, with potential profit-taking impacting the broader tech sector. Near-term technical translation: bearish.
Market Breadth
Market breadth has degraded over the past month, with a decline in the percentage of S&P 500, Nasdaq Composite, and Russell 2000 members trading above their 200-day Simple Moving Averages. Narrow leadership within mega-cap tech persists, reflecting concentrated market strength.
This Week's Notable 52-week Highs:
Apple Inc. (AAPL), Broadcom Ltd. (AVGO), Costco Wholesale Corp. (COST), CrowdStrike Holdings Inc. (CRWD), First Solar Inc. (FSLR), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA)
This Week's Notable 52-week Lows:
Capri Holdings Ltd. (CPRI), Galapagos NV (GLPG), Green Plains Inc. (GPRE), Ingles Markets Inc. (IMKTA), Mosaic Company (MOS), Snowflake Inc. (SNOW), Teladoc Health Inc. (TDOC)
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