(Justin Vaughn, Editor, Options Trading Report)
The S&P 500 kept the Bull charging higher for the third straight week, up 0.6% while its year to date has been blazing, up 15%. The Dow Jones Industrial Average up 1.5% for the week, has lagged all year, struggling to build the index. Both the S&P 500 and Nasdaq Composite have set records for several weeks. “It’s been a really aggressive bull market, and every bull market is going to have some soft patches,” said Ross Mayfield, investment analyst at Baird. The major swings by the Magnificent 7 stocks and other large caps are pretty much the drivers of direction of the Nasdaq and S&P 500. Bonds on Friday edged up slightly with the 10-year note hitting 4.256%, up from 4.252% as the general market was flat.
In the week ahead The Bureau of Economic Analysis will report the PCE, (‘Personal Consumption Price Index’) for May, with early estimates of a 2.6% increase year over year. The index is a very important component that the Federal Reserve uses in their decision making on inflation based rate hikes.
Stocks were mixed on Monday’s opening, with the Dow Jones Industrial Average picking up ‘steam’ into positive territory while the S&P 500 and Nasdaq’ laden with market favorites and popular high techs, struggled. With market leader Nvidia down 13% the past three days, including Monday’s drop of 6.7%, and with a huge capitalization ratio factor, influence on the index is severe. The Dow Jones Industrial Average turned sour on Tuesday dropping near 400 points, while the Nasdaq was up significantly, 213 points, as the high techs marched to a different tune, heading in different directions. All last week the tech-heavy Nasdaq Composite and the broad -based value Dow Jones Industrial Average have “mirrored an alike event” of 30 years ago. According to Dow Jones Market Data, these same index diversions occurred in April of 1995, with no measurable reactions occurring, a truly amazing event. As the market closed on Tuesday, Nvidia claimed another milestone, that of reaching the $2 Trillion cap, joining a select few Magnificent 7 players. Wednesday’s market opened with resolve, with big techs scoring big gains, thrusting the Nasdaq Composite higher. After a week of ‘see-sawing’ the techs awoke, with the tech leaders boosting nearly all sectors of all three indexes. On Thursday mortgage rates dipped for the 4th week in a row, settling at 6.86% according to Freddie Mac. The 30-year mortgage edged downward from 6.87%, following a 25 day trend. The general housing market has been sluggish as inventory is scarce, and home buyers are satisfied with their existing mortgage rates, locked in ‘years ago.’
The Amazing Dollar,,,,Showing no signs of giving ground, continues to be the world’s preferred currency. The dollar, expensive as it is, has and is facing an inflationary period and has maintained superior value against the leading world’s currencies. Even as the Eurozone, Japan, and China crank-up efforts to bolster their economic growth, they are ‘second-best’ against the U.S. economy and the dollar. With China’s manufacturing production suffering major competition, losing ground to a multitude of far eastern nations, and Mexico, the Juan is struggling to face-off against the dollar. The Japanese Yen’s value has plummeted to its weakest value since 1986. According to the WSJ Dollar Index, the U.S. currency has gained more value against the Yen this year. The dollar’s endurance has put to bed fears inflation-induced- weakness, just ask Mr, Powell.
RUMBLINGS ON THE STREET
Mark Luschini, chief investment strategist at Lancy Montgomery Scott, WSJ “The bifurcation in the market continues to exist and there’s a lot of concern about the breadth of the market,” said Mr. Luschini. “Or to put it another way, the narrowing of the leadership.”
Greg Valliere, Chief U.S. Policy Strategist at AGF Investments, Barron’s “Most economists see only a modest correlation between deficits and inflation, but the voters and our clients aren’t buying it–and neither are the rating agencies.”
Christopher W. Callahan, speaking why heat waves spell trouble for the economy, Stanford University, Barron’s “It’s hard to communicate heat as an economic problem,” he said. “It tends to be more subtle, more like death by a thousand cuts.”
Kevin Holt, Manager, Invesco Comstock Fund, Barron’s “When inflation is over 2%, our studies show, value typically performs quite well against growth.”