TAKEAWAYS
- The stock market continued to move sideways as investors continue to be indecisive
- Speech from Fed Chair Powell and Fed meeting minutes could send the market in either direction
- Friday's jobs report could impact price action in the stock market
The stock market's theme this week seems to be indecision. This could continue until Chairman Powell speaks and the June payrolls number comes out next week. You'd think the May Personal Consumption Expenditures (PCE) report showing slowing inflation would boost equities, but while it technically did, it was brief.
Choppy Equities
If you look at a daily chart of the S&P 500 ($SPX), your first thought may be that the market didn't do much to end the trading week. But if you pull up an intraday chart, you'll see a lot of price movement. Initially, stocks rose, as did bond prices. But the rally was short; bonds quickly sold off, and equities stayed higher for over an hour before retreating. The S&P 500 ($SPX) touched a new record high, but the momentum quickly reversed. Equities remained flat for most of the trading day and sold off at the close.
This may be disappointing for bulls as the trading week, month, quarter, and first half of the year ends. But, overall, the year's first half has been a great ride for equities. Maybe investors are getting nervous about the second half of the year, which may be why the stock market is stalling.
The S&P 500 hasn't been doing much since last Thursday. It pulled back mainly due to NVIDIA's selloff, and then it slowly tried to make its way back up (see chart below). But selling pressure came in quickly when it moved too much higher and took the index back down.
CHART 1. CHOPPY STOCK MARKET. The S&P 500 index has been moving sideways for over a week. Will next week present a different picture?Chart source: StockCharts.com. For educational purposes.
The S&P 500 has been moving within a relatively narrow range, and when it tried to break out of this range, it quickly returned. It feels as if bearish pressure quickly jumps in when things get a little too bullish.
Friday's price action suggests that the market may have hit an exhaustion level, given that the bullish pressure couldn't hold. The candlestick bar shows that bearish sentiment dominated the day's trading. The Nasdaq Composite ($COMPQ) shows similar price action.
If you pull up the weekly chart of the S&P 500 (see below), it's clear the week reflected indecision.
CHART 2. WEEKLY CHART OF S&P 500 INDEX. The week ends on a note of indecision.Chart source: StockCharts.com. For educational purposes.
Next week is a short trading week, but there are some key data points on deck. There's the June PMI and the June jobs report. More importantly, we'll hear from Fed Chair Jerome Powell. Will he say something that will make the stock market more decisive? We'll have to wait and see, but, hopefully, something more exciting happens next week.
It's All About Interest Rates
Investors continue to focus on interest rate cuts. When will that first rate cut happen? There's speculation it could be as early as September, but that's iffy given that we're in an election year. It could be after the election, taking it to the November meeting.
The Fed has suggested one rate cut this year, which is what the stock market has priced in. Yet, there's still uncertainty among investors. The 10-year Treasury yield ($TNX) closed higher despite a PCE that indicated inflation is slowly coming down. However, it isn't at levels to be concerned about.
The daily chart of $TNX below shows that the 10-year yield is hitting a resistance level of its February and March highs. It's also close to its 100-day simple moving average (SMA). It'll take a lot for it to break above this level.
CHART 3. DAILY CHART OF 10-YEAR TREASURY YIELDS. While the 10-year yield rose, it's at a resistance level.Chart source: StockCharts.com. For educational purposes.
The Bottom Line
Despite this week's sideways move, the uptrend in the S&P 500 and Nasdaq Composite is still in play. Overall market volatility is still low, as reflected by the CBOE Volatility Index ($VIX). There's a chance we could get some decisiveness creep into the market next week, but don't be surprised if the choppiness continues. Next week could be slow. Happy Fourth of July!
End-of-Week Wrap-Up
- S&P 500 closed down 0.08% for the week, at 5460.48; Dow Jones Industrial Average down 0.08% for the week at 39,118.86; Nasdaq Composite closed up 0.24% for the week, down 0.23% at 17,732.60.
- $VIX down 5.76% for the week closing at 12.44
- Best performing sector for the week: Energy
- Worst performing sector for the week: Utilities
- Top 5 Large Cap SCTR stocks: NVIDIA (NVDA); Super Micro Computer, Inc. (SMCI); Vistra Energy (VST); Applovin Corp (APP); MicroStrategy Inc. (MSTR)
On the Radar Next Week
- June ISM Manufacturing PMI
- May JOLTs Report
- June US Jobs Report
- Fed Chair Powell Speech
- June FOMC Meeting Minutes
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
Happy charting!
