Weekly Trader's Outlook

If you read last week's blog you might recall that my forecast for this week "Slightly Bullish," primarily driven by a bullish technical setup heading into this week. At the time of this writing the S&P 500 is essentially unchanged on the week, including today's 0.75% drop following of a "preemptive strike" by Israel on Iran. Israel's Prime Minister Benjamin Netanyahu cited the country's development of nuclear weapons in Tehran, and vowed to continue strikes against Iran's nuclear and military facilities "for as many days as it takes." Oil prices are higher by ~7% and U.S. stocks are selling off, though not dramatically so.

Regarding trade developments, earlier this week U.S. trade officials met with Chinese counterparts in London and were able to agree upon a trade framework after several days of negotiations. U.S. President Donald Trump indicated that a deal had been reached, stating that China agreed to supply U.S. companies with magnets and rare earth metals, in exchange for not revoking visas of Chinese students in the U.S. However, China said that it is putting a six-month limit on its rare-earth export license to the U.S.

On the economic front, the monthly inflation reports Consumer Price Index (CPI)/Producer Price Index (PPI) came in cooler than expected and there was some improvement in this week's soft data. Treasury yields are lower on the week and rate cut expectations from the Fed ticked up modestly (more on this in the "Economic Data, Rates & the Fed" section below).

At the time of this writing (2:55 p.m. ET), stocks are trading near the lows of the session, following news of counterstrikes by Iran on Israel. It's unknown how long, or to what extent, escalation will persist between these two countries, making it difficult to estimate the potential economic impact for markets (the human tragedy of war is clear). Setting aside the Middle East turmoil, markets will likely be focusing on Tuesday's Retail Sales report and commentary from Federal Reserve Chair Jerome Powell following the two-day Federal Open Market Committee (FOMC) meeting. Markets aren't expecting a rate cut from the Fed (according to probabilities) and today's news regarding Israel/Iran and rise in oil prices likely solidifies that stance. On the technical front, the intermediate-term uptrend in the SPX is still intact, but near-term there has been some deterioration in momentum (more on this in the "Technical Take" section below). Although my stance is in the cautious camp as well close out this week, I'm going to refrain from providing an outlook for next week given the heightened uncertainty surrounding today's news out of the Middle East.

Other Potential Market-Moving Catalysts:

Economic:

• Monday (6/16): Empire State Manufacturing
• Tuesday (6/17): Retail Sales, Business Inventories, Capacity Utilization, Export Prices, Import Prices, Industrial Production, NAHB Housing Market Index
• Wednesday (6/18): Building Permits, EIA Crude Oil Inventories, FOMC Rate Decision, Housing Starts, MBA Mortgage Applications Index, Net Long-Term TIC Flows
• Thursday (6/19): Continuing Claims, EIA Natural Gas Inventories, Initial Claims
• Friday (6/20): Leading Indicators, Philadelphia Fed Index

Earnings:

• Monday (6/16): Lennar Corp. (LEN)
• Tuesday (6/17): Jabil Inc. (JBL), John Wiley & Sons Inc. (WLY), La-Z-Boy Inc. (LZB)
• Wednesday (6/18): Korn Ferry (KFY), GMS Inc. (GMS), Smith & Wesson Brands Inc. (SWBI)
• Thursday (6/19): -no reports-
• Friday (6/20): Accenture PLC (ACN), Kroger Co. (KR), Darden Restaurants Inc. (DRI), CarMax Inc. (KMX)

There was a steady dose of economic data this week which was highlighted by cooler-than-expected monthly inflation data (CPI/PPI). The subdued inflation data should make it easier for the Fed to provide some rate cuts at some point, though the annual increases remain above the Fed's 2.0% target. Elsewhere, the "soft data" as conveyed by both the Small Business Optimism Index and Consumer Sentiment report both showed improvement. Here's the breakdown from this week's reports:

• Consumer Price Index (CPI): Headline increased 0.1% on a month-over-month (MoM) basis (below the +0.2% expected); Headline year-over-year (YoY) increased 2.4%, in line with the +2.4% expected. Core CPI increased 0.1% MoM (below the +0.3% expected) while Core YoY increased 2.8% (below the +2.9% expected).
• Producer Price Index (PPI): Headline decreased 0.1% on a month-over-month (MoM) basis (in-line with estimates); Headline year-over-year (YoY) increased 2.6% (in-line with expectations). Core PPI increased 0.1% MoM (below the +0.2% expected) while Core YoY increased 3.0% (below the +3.1% expected).
• NFIB Small Business Optimism Index: Rose to 98.8 in May from 95.8 in the prior month, ending four consecutive months of declines. The Uncertainty Index rose 2 points in April to 94.
• University of Michigan Consumer Sentiment: Rose to 60.5 from 52.2 in May, which was well above the 54.0 Dow Jones estimate. One-year inflation expectations eased to 5.1% from 6.6% in the prior month, while five-year expectations eased slightly to 4.1% from 4.2%.
• Initial Jobless Claims: Were unchanged versus last week's (upwardly revised) 248K, and above the 245K expected. Continuing Claims increased 54K from last week.to a cycle high 1.956M, which suggests hiring sluggishness.
• The Atlanta Fed's GDPNow "nowcast" for Q2 GDP is unchanged at +3.8% from last Friday.

Treasury yields are up today following Israel's preemptive strike on Iran, but yields have been on the decline over the past week. Also worth noting were a couple of long-term Treasury auctions (30-year and 10-year) issued this week, which received a warm reception from bond investors. Compared to last Friday, two-year Treasury yields eased ~7 basis points (3.97% vs. 4.04%), 10-year yields are down ~9 basis points (4.42% vs. 4.51%), while 30-year declined ~7 basis points (4.90% vs. 4.97%).

Expectations around potential rate cuts from the Fed moved modestly higher this week, primarily driven by the cooler-than-expected CPI/PPI reports. Per Bloomberg, expectations for a 25-basis-point cut at the July FOMC have moved up to 20% from 16%, and the total 2025 expected 25-basis-point cuts are now up to 1.90 from 1.77 (both on a week-over-week basis).

Last week I noted that the Russell 2000 (RUT) appeared to be breaking out from a (bullish) inverse head-and-shoulders pattern, and that still appears to be the case. However, the index also appears to be contending with near-term resistance at its 200-day Simple Moving Average, which it nearly touched on Wednesday of this week. Therefore, while the intermediate-term technicals have seen incremental bullish improvement, but on a near-term basis, the index needs to clear resistance at the 200-day SMA (2,175) for bullish confirmation.

Near-term technical translation: bullish w/close above 2,175

The S&P 500 index (SPX) maintained is "melt up" mode this week, sans today's drop following the Israel strikes on Iran. The index crept above the psychological resistance level of 6,000 and is currently ~2% below the all-time closing high of 6,144 back on February 19th. There doesn't appear to be any technical signals that the uptrend is in jeopardy, at least not yet, other than an indication that momentum is slowing as evidenced by the modest negative divergence in the Relative Strength Index (RSI). The technical are still bullish from an intermediate-term perspective, but on a near-term basis (let's say next two weeks) perhaps some caution is warranted, especially in light of the SPX's +20% rally off the April 7th lows. Some technicians might wait for a close below the 20-day Simple Moving Average (the aqua line in the chart below), which the SPX hasn't been below since April 23rd, before shifting to a cautious view.

Near-term technical translation: neutral to slightly bearish

Earlier today The Wall Street Journal reported that retail giants Walmart and Amazon are considering stablecoin offerings which could reduce transaction costs (associated with credit card issuers for example) and enhance customer loyalty. Stablecoins are digital tokens designed to maintain a stable price, at least relative to other cryptocurrencies, by pegging the value to a reserve currency, such as the U.S. Dollar, a basket of currencies, or a commodity like gold. Shares of recent IPO Circle Internet Group, which issues the second largest stablecoin by market cap (USDC), are up 20% today, likely influenced by today's WSJ report. Also worth noting is a U.S. bill designed to provide regulatory framework around stablecoins, known as the GENIUS Act, which is set for a Senate vote next Tuesday (June 17th).

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 essentially unchanged on the week, but underneath the surface market breadth expanded considerably. On a week-over-week basis, the SPX (white line) breadth moved up to 53.80% from 48.80%, the CCMP (blue line) lifted to 39.10% from 34.66%, while the RTY (red line) jumped to 39.10% versus 32.54%.

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 (50 today): Cardinal Health Inc. (CAH + $1.11 to $161.63), Heico Corp. (HEI + $1.23 to $305.35), International Business Machines Inc. (IBM - $3.17 to $277.85), Microsoft Inc. (MSFT - $2.14 to $476.74), Oklo Inc. (OKLO - $0.30 to $64.18), Oracle Corp. (ORCL + $10.41 to $210.25)

This Week's Notable 52-week Lows (73 today): Boston Beer Company (SAM - $2.75 to $211.64), Brown Forman Inc. – Class A (BF/A - $0.43 to $26.86), Clorox Company (CLX - $1.72 to $125.56), Conagra Brands Inc. (CAG - $0.07 to $22.21), Eagle Materials Inc. (EXP - $4.51 to $198.06), Spectrum Brands Holdings Inc. (SPB - $1.16 to $53.13)