The financial markets have a big week coming up as we will get CPI/PPI inflation data before the Fed’s next rate decision on Wednesday. At this point, the Fed has telegraphed a pause but that was before the robust jobs number reported on June 2nd. The technicals are also at an important juncture as the S&P 500 has rebounded back to the August 2022 high (‘B’) at $432 as I have drawn in the chart below.

S&P 500 ETF @kiscocap
$SPY intra-day. @kiscocap

If you zoom into the intra-day chart on Friday, you can see the $432 level was tagged momentarily before sellers pushed down prices into the afternoon. And it is likely that this price-point in the chart will act as strong resistance and a hurdle for trading next week.

Will next week provide a catalyst for a breakthrough and maybe a new uptrend? That is what traders will be watching as the inflation data and maybe a renewed Fed outlook on rate policy may provide. However, the robust jobs number for May is not what the Fed wanted to see as wage inflation is a threat to pausing rate hikes for a longer period of time.

And there is the risk that the market will run out of gas as breadth has been narrow and limited to a handful of large-cap technology names. You can see in the chart below that a negative divergence is building as prices rise (grey bars) with fewer stocks advancing in lock-step (yellow line). In other words, the market is thinning out and ideally you want the yellow line below leading prices higher. By the way, this same divergence exists for the NASDAQ in much greater amplitude. (Thanks to Elliot Wave International for the chart below)

Elliott Wave International A/D line.

The Bond Market

The yield curve remains deeply inverted meaning interest rates should fall sometime within the next year. However, it also implies one more rate increase of 25bps which the market is pricing in for the July Fed meeting.

@kiscocap UST Yield Curve

Economic Data

  • The Manheim Wholesale Used Car Index declined 2.7% from April to May and is 7.6% lower compared to last year.
  • Initial jobless claims rose to 261k from 233k and that is the highest level since October 2021.
  • The US trade deficit for April widened to $74.6B which will weigh on GDP. Exports fell by the most since pandemic-related lockdowns and data from the U.S. and other nations suggest global trade volumes are slowing.  
US Trade Deficit
Paul McCarthy, President of Kisco Capital, LLC

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Paul J McCarthy III CFA

President, Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.