Weekly Trader's Outlook

If you read last week's blog, you might recall that I had a "Higher Volatility" forecast for this week, citing several potential catalysts (Apple WWDC, monthly inflation data, SpaceX IPO, etc.) along with the heavy selling in tech stocks late last week. Yes, stocks are on track to be higher on the week, but there was a lot of both downside and upside volatility. The Cboe Volatility Index (VIX) briefly pushed above the 23 level on Tuesday but it's back down to a relatively cooler level of 18 today. Treasury yields and oil prices also cooled off this week, mostly driven by reports yesterday stating that the U.S. and Iran could sign a deal "in the next few days." Although there appears to be some conflicting details about a potential deal, reports are indicating that the two sides have agreed on the text of the memorandum of understanding and Iran's foreign minister stated that an agreement "has never been closer." According to CNN sources, U.S. personnel are planning another round of peace talks this weekend and a signing ceremony could be held in Geneva, Switzerland as early as Sunday. Regardless, stocks saw a strong intraday reversal yesterday on the potential deal and are seeing some follow-through buying today.

Here's a breakdown of several other noteworthy events this week:

• Apple (AAPL - $5.44 to $290.19) held its annual Worldwide Developer's Conference (WWDC) on Monday but disappointed investors by announcing that only a beta version of Siri artifical intelligence (AI) will be available later this year. AAPL hit a fresh all-time high of $317.40 on Monday but closed down by roughly 2% that day as headlines rolled out.
• The monthly consumer price index (CPI) and producer price index (PPI) reports came in mostly cooler than expected (headline PPI was hot), but annual gains are at multi-year highs and well above the Federal Reserve's target (more on this in the "Economic Data, Rates & the Fed" section below).
• SpaceX (SPCX) opened for trading on the Nasdaq today at $150.00/share, above the $135.00 offer price, and are trading near $170.00/share at the time of this writing.
• The PHLX Semiconductor index (SOX) had a bumpy week but are on track for a ~9% weekly gain and appear to have found support at the 20-day Simple Moving Average (SMA) once again this week.
• Software stocks are out of favor once again despite better-than-expected quarterly results from Adobe and Oracle (Oracle cloud revenue was a slight missed and the company announced plans to raise funds). The iShares Expanded Tech-Software sector ETF (IGV) is down 16% over the last 10 trading days but appears to be finding support at its 50-day SMA over the last 48 hours.
• Bitcoin (BTC + $150 to $63,825) held its ground at the 200-week Simple Moving Average (approximately $62,000) this week but remains technically challenged.

At the time of this writing (2:30 p.m. ET) all the majors are higher across the board, though off the highs of the session (DJI + 394, SPX + 35, $COMP + 73, RUT + 29), as expectations appear to be elevated for some kind of an agreement between the U.S. and Iran over the weekend. At least that is the read I'm taking from oil prices, which are trading at the lowest levels since mid-April (WTI crude is down more than 3% today to ~$85/barrel). A senior administration official was quoted as saying that there is an 80-85% chance of a U.S.-Iran deal, according to CNBC. Outside of geopolitics, both the S&P Equal-Weight (SPXEW) and Russell 2000 (RUT) are breaking out to fresh all-time highs today, which is encouraging from a technical perspective. Next week Kevin Warsh will be holding his first Federal Open Market Committee (FOMC) meeting as Fed chair, though it's still unclear whether there will be a press conference after the meeting like his predecessors have conducted. While market expectations are for no change to monetary policy, inflation has been heating up over the past couple months and if a U.S.-Iran deal stalls, this could make the Fed's job difficult. Outside of the FOMC meeting and a potential Iran deal there doesn't appear to many other market-moving catalysts. Given the improvement in technicals (SPXEW/RUT new highs, SOX bounce off 20-day SMA), the fact that the SpaceX initial public offering (IPO) is behind us (some of the selling pressure in tech had been attributed to investors raising funds for today's IPO) and the recent pullback in both oil prices and Treasury yields, I feel that the odds favor the bulls next week. Therefore, I'm providing a "Bullish" forecast for next week. What could challenge my forecast? There are two potential culprits in my view: a) a breakdown in U.S.-Iran talks, and subsequent rise in oil prices/yields, or b) a hawkish surprise from the FOMC meeting

• Monday (June 15): Capacity Utilization, Empire State Manufacturing, Industrial Production, NAHB Housing Market Index
• Tuesday (June 16): Building Permits, Export Prices, Housing Starts, Import Prices
• Wednesday (June 17): Business Inventories, EIA Crude Oil Inventories, Federal Open Market Committee (FOMC), MBA Mortgage Applications Index, Pending Home Sales
• Thursday (June 18): Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Net Long-Term TIC Flows, Philadelphia Fed Index
• Friday (June 19): -no reports-

• Monday (June 15): Anavex Life Sciences Corp. (AVXL), Canopy Growth Corp. (CGC), Dave & Buster's Entertainment Inc. (PLAY), PowerFleet Inc. (AIOT), RF Industries Inc. (RFIL)
• Tuesday (June 16): John Wiley & Sons Inc. (WLY), La-Z-Boy Inc. (LZB)
• Wednesday (June 17): Carmax Inc. (KMX), Jabil Inc. (JBL), LiveOne Inc. (LVO), Safe Bulkers Inc. (SB), Smith & Wesson Brands Inc. (SWBI), Trip.com Group (TCOM)
• Thursday (June 18): Accenture PLC (ACN), America's Car-Mart Inc. (CRMT), Korn Ferry (KFY), Kroger Co. (KR)
• Friday (June 19): -no reports-

There was a moderate dose of economic data for markets to digest this week, which was highlighted by the monthly inflation reports. On the consumer side of inflation (CPI), the data was slightly cooler than anticipated, though annual gains remain well above the Fed's 2.0% target. On the wholesale side of inflation (PPI), the headline figures were hot, but core gains were cooler than expected. Elsewhere, Initial Jobless Claims rose to the highest level since February this week but still hover around historically low levels. Here's a breakdown of the reports:

• Consumer Price Index (CPI): The headline CPI rose 0.5% in May, which puts the annual inflation rate at +4.2% (both in line with expectations). The annual inflation pace is up from 3.8% in the prior month and at the highest level since April 2023. Core CPI rose 0.2% in April (below the +0.3% expected), which translates into a +2.9% annual inflation rate (in-line with estimates). The annual core CPI is up from +2.8% in the prior month.
• Producer Price Index (PPI): The headline PPI rose 1.1% in May, above the 0.7% Dow Jones consensus estimate. On an annual basis, headline PPI jumped 6.5%, which represents the biggest increase since November 2022. Core PPI rose 0.4% in May, which was below the 0.5% expected. This puts the annual core PPI gain at 4.9%, well below the +5.4% expected.
• Existing Home Sales: Climbed in May 3.2% from the prior month to a five-month high of 4.17M.
• NFIB Small Business Optimism Index: Slipped 0.6 points from the prior month to 95.3. The NFIB survey showed the share of small businesses planning to increase prices over the next three months increased seven points to 34%, which is the highest reading since July of 2022. The number of business owners that increased prices in May increased 6 points to 36%, which is the highest since March of 2023.
• University of Michigan Consumer Sentiment – Preliminary: The latest survey showed that consumer sentiment rose 9% to a preliminary reading of 48.9, up from 44.8 in the prior month. This represents the first improvement in sentiment since February.
• Wholesale Inventories: 0.6% vs. 0.4% est.
• EIA Crude Oil Inventories: -7.23M barrels
• EIA Natural Gas Inventories: +108 bcf
• Initial Jobless Claims: Initial applications for U.S. jobless benefits increased 4K from last week's (upwardly revised) 225K to 229K, which was above the 220K economists had expected. Continuing Claims increased 18K from the prior week to a seasonally adjusted 1.795M.
• The Atlanta Fed's GDPNow "nowcast" for Q2 GDP was revised up to 3.3% on Tuesday from 3.0% last week due to upward revisions to consumer spending and residential investment.

U.S. Treasury yields declined across the curve this week, with the bulk of the move coming from yesterday's reports of a memorandum of understanding between the U.S. and Iran and subsequent fall in oil prices. The Treasury yield curve experienced some steepening this week as two-year yields eased relatively more than other durations. Compared to last Friday, two-year Treasury yields dropped ~8 basis points (4.085% vs. 4.16%), 10-year yields are down ~5 basis points (4.487% vs. 4.536%), while 30-year yields eased ~3 basis points (4.975% vs. 4.999%).

Market expectations around potential rate hikes from the Federal Reserve cooled off some this week, primarily due to optimism around U.S./Iran relations and the opening of the Strait of Hormuz. Per the Bloomberg rate probabilities, market expectations at the October FOMC meeting are down to 44% to 66% week-over-week. Additionally, the first theoretical 100% probability of a rate hike has been pushed out to the March 2027 FOMC meeting from December 2026 last week.

The Nasdaq Composite index ($COMP) experienced a roughly 7% drawdown over roughly seven trading days, which is a healthy consolidation period in my book given the 20%+ rally off the March 30th lows. The pullback brough the index right down to its 50-day Simple Moving Average (SMA) where buyers stepped in multiple times this week. While it's possible that there could be a larger "June swoon" in store for tech stocks in the coming weeks, but for now the bounces off this support level is technically bullish.

Near-term technical translation: moderately bullish

Both the S&P Equal Weight index (SPXEW) and Russell 2000 (RUT) are trading at fresh all-time highs today, supporting the notion that the rally in stocks is seeing broader participation, which is generally a healthy sign. Additionally, the SPXEW tested support multiple times this week around 8,300, which was the prior all-time high (from January/February) for this index. Breaking out to fresh all-time highs and bouncing off support are both technically bullish.

Near-term technical translation: bullish

The Bitwise 10 Large Crypto Index is up 5% week-over-week, with bitcoin up 2% and ether up 3% at the time of writing this on Friday. Amid the ongoing bear market, there is a major sentiment mismatch across DeFi and TradFi. For those who have been building in DeFi for years, given the broader bull market in equities, AI, and what appears to be all things not crypto, these digital natives are more bearish than ever, with many pivoting to other areas of technology development. In TradFi, while participants acknowledge prices are down, the mood seems to be more bullish than ever as financial institutions across the world race to incorporate digital assets into their business models.

While it's difficult to find a perspective on both sides of the industry where sentiment is broadly constructive, Hyperliquid—the decentralized perpetual futures (perps) exchange—may be one such case. Year to date, HYPE, the native token of the Hyperliquid blockchain, is up 131%, compared to bitcoin, which is down 31%.

The constructive interpretation of this suggests that the digital assets industry is maturing, with assets beginning to exhibit lower correlation to bitcoin. The skeptical interpretation is that this reflects a continuation of a longstanding feature of crypto markets—chasing momentum.

Hyperliquid has provided a venue for investors to trade perps during the bull market, precious metals in the fall, oil futures earlier this year at the onset of the Iran war and most recently pre-IPO shares of AI companies. HYPE's correlation with the momentum factor suggests that the latter interpretation may be more consistent with recent price action.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, stocks are on track to be higher this week, but market breadth only expanded in the SPX and RTY. The contraction in market breadth in the Nasdaq may be due to some broad selling in tech to make room for the SpaceX IPO. Compared to last Friday, the SPX (white line) breadth moved up to 61.20% from 59.00%, the CCMP (blue line) eased to 44.75% vs. 45.49%, while the RUT (red line) improved to 61.86% from 60.30% (all week-over-week).

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (246 today): Applied Materials Inc. (AMAT + $6.43 to $559.07), Citigroup Inc. (C + $2.98 to $141.05), Elevance Health Inc. (ELV - $1.71 to $397.46), Hilton Inc. (HLT + $6.33 to $348.19), Metlife Inc. (MET + $1.73 to $89.31), Prologis Inc. (PLD + $2.51 to $149.70)

This Week's Notable 52-week Lows (55 today): Bill Holdings Inc. (BILL + $0.92 to $33.05), Cable One Inc. (CABO + $3.69 to $45.26), Expand Energy Corp. (EXE + $1.51 to $88.59), Ingredion Inc. (INGR + $0.20 to $101.10), Intuit Inc. (INTU - $4.29 to $272.62), Mosaic Co. (MOS + $1.53 to $22.62)