The market continued to move up this week and have added to last week’s rally. While the market fell yesterday on the Fed announcement, it has rallied strongly this morning and is trying to regain support at the 7500 level. We are at those levels now so we will be watching to see if the market can move up above resistance. Getting back above Monday’s highs will be important for the bulls to establish a new short-term uptrend and would validate that the early June correction is over. The S&P is currently just a tad more than 1% off of its June 2nd high. Things look a lot better this week than last week.
Semiconductor stocks have been a leader for this market over the last year. While the S&P (above) and Nasdaq (not shown) haven’t yet broken out to new highs, the ETF SOXX hit new highs this morning. The fact that this important sector has already moved higher bodes well for the rest of the market to follow. It is particularly important for the Nasdaq as nearly all of the large semiconductor stocks reside there.
Our Point
With financial markets closed tomorrow for Juneteenth, we are sending out this week’s market note early. The markets had follow-through from last week’s gains with a strong showing on Monday. Tuesday and Wednesday saw some selling with the markets falling hard after the Fed announcement yesterday. Yesterday’s Fed announcement was the first look at new Fed Chairman Warsh in his new capacity. Investors did not like his hawkish stance and stocks fell during the press conference after the rate announcement. As expected, the Fed kept rates steady but the comments after the announcement spooked the markets. The unanimous decision and a discussion of rate hikes later this year had traders scrambling for the exits. As is often the case, however, the initial reaction (up or down) to a Fed meeting is often reversed the next day as investors come to grips with the announcement and start looking forward to other economic news. It is a classic buy the rumor and sell the news. We are seeing that play out today with markets strongly up. The fact that the Memo of Understanding between the US and Iran was signed last night also takes some uncertainty off the table. It should be noted that the memo is not a formal treaty or agreement but rather just a framework of a deal and a further cessation of hostilities for another 60 days. Importantly, the Strait of Hormuz will be opened for these 60 days. Oil prices have plummeted and are approaching pre-war levels. The reduction in oil prices will ease inflation concerns should they continue to fall. Better inflation reports over the next couple of months could put talk of rate hikes back off the table and bring back rate cut discussions. Next week is a little light on market moving economic news. We will get some reports (most notably the PCE inflation report), but the market will likely continue on its current trajectory unless Middle East tensions flare and the Iran talks stall. The backward-looking inflation report isn’t likely to move the market as inflation expectations have changed considerably with oil flowing again in the Strait of Hormuz. With quarter end approaching, we could see a little volatility as managers reposition their holdings for quarterly reporting. We made no changes to our portfolios this week and continue to enjoy the market rallies. It looks to be an excellent quarter for our clients. It will be another weekend preparing for our upcoming move. Lots of boxes to fill and loads to take – it’ll be a busy weekend. Also, today marks 38 years of marriage to the love of my life. Happy anniversary Kelly! Enjoy your long weekend wherever it finds you.
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About Bo Bills
Founder and Chief Investment Officer at Bills Asset Management. With over 30 years of experience in managed risk investing, Bo has helped countless clients achieve their financial goals while preserving capital.
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