Last week, stocks (SPY) got off to the bullish start we were looking for, but then the roller coaster of news events took over.
The most impressive part of stocks’ Monday and Tuesday (above) was that it flew in the face of surging Treasury yields (falling TLT – below).
The bulls were helped by moderating oil prices on Monday and into Tuesday’s open (below).
However, on Wednesday, hawkish Fed minutes revealed that most officials expect another rate hike this year as inflation remains stubbornly high.
Thursday, a Financial Times report questioning OpenAI's revenue outlook rattled semiconductor stocks. This, along with another oil spike, sent stocks lower.
Then Trump stepped in and announced productive talks with Iran and pledged no military strikes before the November elections, sending oil prices lower late Thursday.
Finally, Friday brought another twist as Trump announced a Russian diesel supply agreement.
For many investors, it probably looked like the same old story - oil was shaking up stocks and bonds, and Trump was doing his best to stoke the bullish narrative for stocks with news to push oil and diesel prices lower.
But last week’s Market Outlook suggested you focus on three questions to avoid getting swept up in the news flow.
Are bonds finding a bottom?
Is the equal-weight S&P 500 (RSP) finding a bottom?
Are the big cap tech stocks and SMH continuing to lead higher?
The Important Moves
Last week was threatening for the SPY and QQQ, but both still have very bullish charts if they break higher. “If”.
The big news for the bulls was in bonds. You need only to look at the big green candles from last week, one from a new low for the move to see that there was something different about last week.
The big news, however, wasn’t the green candles, but rather the fact that both the 10-year and 30-year bond auctions were very well received on Wednesday and Thursday, and the TLT market responded with big rallies both days.
A strong bond auction won’t calm the media's focus on headline inflation, but more importantly, it showed demand for US bonds from foreign and domestic investors.
If bonds can find a level of support here, stocks have a good chance of moving higher, assuming earnings season doesn’t create new problems
The Broad Market Finds A Bottom
The table below shows the ranking of the key markets by WTD performance. RSP tops the list. It’s not a raging bull indicator, but it’s the market rotation investors want to see when SMH is getting hit, and SPY is pulling back
In the table above, I highlighted the short-, intermediate-, and long-term ratings with colors that represent how I’d rate their total score. The best news, perhaps, is USO as neutral. The chart of USO could go either way, but neutral suggests it may struggle if it heads higher. Let’s hope that’s the case.
Next Week: The News Changes
Next week, earnings season kicks off with the banks. While earnings are the key driver of this market, the key indicators are still the same 3 questions posed above.
We’ll also get inflation data, but how much that matters will be answered by the same questions – do the bonds maintain a bottom here?
The news will change, that narrative hasn’t, and your focus shouldn’t either.
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