Last week, the S&P 500 reclaimed the $6,000 mark with the help of a surprisingly mediocre monthly employment report.
There is an important market message here, and…
It coincided with a big breakout in silver, which has a chart that has been preparing for a big move for months.
Last week also saw a big rotation into two economically sensitive commodities and into small caps!
If stocks closing in on all-time highs, accompanied by breakouts in precious metals, commodities, and small-cap stocks, don’t get your attention, then…
Did you see the crypto-related IPO that legitimizes America’s path of adopting crypto as a new preferred form of payment, analogous to the invention of credit cards?
The IPO was one of the largest in decades. Its stock soared over 250% in two days, establishing the company’s value at over $16 billion.
We’ve got a lot of opportunities and insight to cover in this week’s Market Outlook!
American Exceptionalism, Transitory?
The last time the S&P 500 was trading at $6,000 (February), the market was commonly described as benefiting from “American exceptionalism.”
Well, the market has a way of humbling such confidence.
It’s not a surprise that the phrase didn’t make its way into the market conversation on Friday, considering the medias “hot topic” wasn’t even the economic report. The media was more interested in the war of words playing out in public statements between the President and Elon.
The other reason, “American exceptionalism” will probably go the way of another notorious phase, “transitory”, can be seen in the chart below, which shows that the MSCI All Country World Index (NASDAQ: ACWI ) is outperforming the S&P 500 by 4.8%.
If this trend holds, it will be only the 4th time in 17 years that the S&P 500 has trailed the world index.
As we’ll review below, the global outperformance is actually much bigger than the ACWI suggests.
This underperformance by the U.S. may not seem consequential right now, but just like the mediocre employment report on Friday demonstrated, “news” like this can have unanticipated consequences on market action that you can profit from if you know how to use it.
Here’s how…
On Wall Street, sometimes bad news is good news, good news is bad news, and occasionally…
Like last Friday, the market is pleasantly surprised when an economic report comes in at the same level as the consensus forecast. Positive surprise?
The S&P responded with a 1% gain, even in the face of 10-year bonds falling, which pushed interest rates higher.
Friday’s nonfarm payrolls report delivered 139k jobs, which was only 13k more than the consensus forecast. That’s the second smallest difference from the forecast in the last 18 reported months (a period which has had an average “miss” of 62k).
So, given the emotional headwinds of poor global relative performance, along with childish U.S. politics, while we await Congress’s attempt to pass a budget, it’s not surprising that “as forecasted” news would put stock investors in the mood to push stocks up 1% and create a breakout over a level that has been a ceiling since mid-May.
Here’s why…
Investors can be a sensitive and fickle bunch, and…
On Wednesday, ADP released its Nonfarm Employment data, and it was much weaker than expected (37k vs. 111k forecasted). As shown in the chart below, the report recorded the smallest number of jobs since 2021.
This negative report had investors bracing for a negative surprise in the more important Friday BLS Nonfarm Payrolls report.
The Friday Payrolls and Unemployment Report
There are several key questions that investors are looking for the monthly report from the Bureau of Labor Statistics (BLS) to answer right now.
- Is the economy producing enough jobs?
- Are wages supportive of consumer spending, but NOT rising at an inflation-creating rate?
- Is the unemployment rate (which has recently leveled off) reaccelerating?
The media likes to make headlines and debates with the nuances of all the data in this report, but most of the time, you can focus on the main numbers, the trends, and of course, most importantly, the market’s opinion of the report!
This week, as I’ve already hinted, the market’s response was seen and felt in many areas. I’ll lead with the S&P 500, but the bigger insights and opportunities may be related to:
- Global equities’ new and sustained market leadership,
- Small caps with impressive bullish action,
- Commodities reaccelerating,
- The bull market in precious metals broadening out,
- Why the Circle IPO is even bigger than its two-day 250% gains, and everyone should understand this big, underappreciated trend in crypto!
Summary: Markets showed broad-based strength with most sectors and asset classes in accumulation phases, led by semiconductors. While some volume and inflation signals remain mixed, improving internals and leadership from growth and foreign equities support continued bullish momentum.
Risk On
- Markets continued to move up, between 1-3% on the week, with now everything but the Russell positive on the year and in accumulation phases. (+)
- 11 of the 14 sectors were up, led by Semiconductors , Biotech , and Retail , which is bullish. Defensive sectors like consumer staples , and Utilities were down on the week. (+)
- Silver came on strong, up over +9% on the week, along with other metals like Palladium , and the broader sector ( XME ). With gold flat, this may indicate risk-on. (+)
- The McClellan Oscillator moved into positive territory along with Adance Decline and up-down volume ratio. (+)
- The new high new low ratio continued to improve with everything stacked positive for both the Nasdaq Composite and S&P. (+)
- The color charts (moving average of the percentage of stocks above key moving averages) show neutral readings on the 20-day periods while 50 and 200 remain very bullish. (+)
- Risk gauge remained positive at an 80% reading. (+)
- Volatility continued to come off with its lowest reading since February. (+)
- The percentage of stocks over key moving averages is positively stacked and sloped and not in overbought territory. (+)
- Growth stocks outperforming value by a wide margin on all time frames. (+)
- Foreign equities were strong on the week and in bull phases, outperforming the U.S. and showing leadership across the board. (+)
- Seasonal patterns for June and July are positive. (+)
Neutral
- Volume patterns are strong in S&P and Nasdaq with neutral to negative readings in the Dow and Russells . (=)
- Silver came on strong, up over +9% on the week, along with other metals like Palladium, and the broader sector (XME). (+)
- Modern family giving a mixed read with Retail and Semiconductors strong, though four of the six members are still below their 200-Day Moving Average, though Biotech showed noticeable improvement into a recovery phase. (=)
- Commodities are strong with Agriculture and Copper in bull phase, perhaps contradicting other low inflation readings. (=)
- Oil had an important breakout and moved into a recovery phase, improving against the S&P on a short-term basis, while Gold was marginally up on the week. Although oil production is due to rise problems with Iran could continue the upward pressure. (=)
- Rates chopped around in a trading range without much clarity on what the Fed will do and relative impact of the increases in commodity prices. (=)
- Small caps still lagging along with transports on a longer-term basis and giving a mixed signal on the health of the economy. (-)