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Stock Market Outlook
For The Week Of June 2nd =
Uptrend

INDICATORS

    ADX Directional Indicators: Downtrend
    Price & Volume Action: Uptrend
    On Balance Volume Indicator: Uptrend

ANALYSIS

The stock market outlook starts June in an uptrend after a wild day of trading to close out the month.

The S&P500 ($SPX) was down 0.5% last week.  The index closed ~2% above the 50-day moving average and ~9% above the 200-day moving average.

Technical analysis of daily SPX prices

SPX Technical Analysis - June 02 2024

ADX flipped to bearish on Thursday, and OBV stays bullish.

Institutional activity was mixed last week, but remains bullish overall.  Market makers sold mid-week (2 more distribution days for a total of 4), then bought substantially at the 50-day moving average on Friday.

Weekly price performance of S&P500 sector ETFs

Although a majority of sectors ended the week in positive territory, large capitalization stocks like Microsoft ($MSFT) counteracted those gains in the broader index.  Technology ($XLK) dropped 2.3%, while the Energy ($XLE) rebounded from its recent losing streak and finished 2% higher.

Across asset classes, it was a case of "least bad", with each one registering a loss last week.  Bonds suffered the least damage, down 0.10%, while Bitcoin fell 2.3%.

Weekly price performance by asset class

COMMENTARY

The second estimate for Q1 GDP came in at 1.3%, which is 0.3% below the first estimate of 1.6% and well below Q4 GDP at 3.4%.  Consumer spending slowed more than initial estimates, for both good and services, while government spending was revised slightly higher.  Inflation remains sticky, with PCE showing no additional reductions in April.

PCE (y/y) Actual     Prior     Expected
Headline +2.7% +2.7% +2.7%
Core +2.8% +2.8% +2.8%

Weaker growth and sticky inflation will put even more pressure on interest rate policy, as any move to improve one will hurt the other.  Rates resumed their rising trend over the past two weeks, making any kind of spending or stimulus even more expensive.  On the equity side, sector performance and institutional activity gives the impression of rotation and re-balancing, rather than any kind of reduction in exposure to equities.

And if Friday proved anything, it's that this isn't your father's stock market. After a brief rise at the open, the $SPX sold off during the morning, losing roughly 1% by mid-session.  But once the index closed in on the 50-day moving average, buyers stepped in and pushed prices up roughly 0.5%.  Turns out that was just a warm-up.   In the final 30 minutes of trading, the S&P500 rallied almost 1%.  Not 1 stock.  Not the Magnificent 7.  The entire index of 505 tickers, representing 500 companies and ~44 trillion dollars of market cap.

Source: Google.com


Let it serve as a reminder about the nature of today's financial markets.  Corporate financials (corporate revenue, earnings, debt) had nothing to do with the move.  Nothing.  No macroeconomic data (i.e. GDP, CPI) or fundamental research on Apple, Microsoft or Tesla would've prepared you to take a position.  Instead, market makers had an imbalance of some kind, and needed to buy equities at whatever price was available before the market closed...at a rate of ~15 Billion dollars per minute.

This week, the market will digest May ISM manufacturing and services PMI data, as well as jobs-related data (April JOLTS and May Non-Farm Payrolls)

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don't, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics



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Once a year, I review the market outlook signals as if they were a mechanical trading system, while pointing out issues and making adjustments. The goal is to give you to give you an example of how to analyze and continuously improve your own systems.

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