Market Briefing For Monday July 1

The 2nd Quarter ends - with a broad indecision along with consolidation; as we anticipated for June's 2nd half. Now the question is whether a little more of this 'drift' and bifurcated shuffle will lead to a firmer 1st half of July.

Much of what we saw late this week was re-balancing (Quarter's-end activity), and not so much a response to the 'Debate' (or two old guys debating whose Golf handicap was lower in their prime, when clubs were likely mostly wooden) .. I couldn't resist that.. as I once had a putter with a wooden shaft.

Anyway this first half of the year is done; the picture is mixed (bifurcated) and a lot of institutional guys are hollering for an S&P correction. We suspected a boring consolidation in June followed by a focus on value stocks vs mega-cap techs; with of course sensitivity to what the Fed does and geopolitical risk(s).

Many are asking 'not' about politics, but what the AI strategy is. We have two or more semiconductors for a long time and that will do; and would not chase Nvidia or others. I've said that all month and continue to focus not merely on super-powerful hardware (which is now becoming available), but on 'software' (and particularly 'Application Software' for military and security aspects; plus of course voice generative AI). 

Market X-ray: Hard to say what happens to S&P immediately; but remaining optimistic for July's first half; not necessarily without some shuffling to start it off. The PCE was sufficiently helpful and the Fed needs to see the situation.

So S&P firmed in the last half hour and then sold-off sharply in final minutes. None of it serves a guidance function for the new week, given month-end as well as Quarter's-end re-balancing finales.

The PCE came in about as it should and there's no news really. Geopolitically you do have risks, I've pointed-out a couple; and Putin is 'radiating' negativity about expanding nuclear missile production. He could just buy some from his North Korean buddies. The sums being spent on armaments is atrocious, but there's not a whole lot of choice when you have rogue leaders around. Very tough to critique this world, which still rhymes with 1930's pre-war Europe.

Bottom-line: you have some traders expressing 'over-confidence' about big caps; and others trying to accumulate small caps, perceiving better value. In a nutshell that's the recipe I've talked off; trimming super high stocks while for sure very selectively adding to small-caps; often previously frustrating.

So is this going to break the momentum mega-cap trend; maybe bend but not break; and that's generally how we approached June; with a broader 'hope' to see breadth improve in the hunt for moves in value plays during July. And for sure the Presidential cycle matters; not because there's really 'Trump love', at the same time the market does view a GOP Congress as market-favorable. It is still a consolidation for the moment and we'll see if July unfolds as I suspect it will in a way, particularly if the Fed grasps unfolding consumer weakness.

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