Weekly Trader's Outlook

If you read last week's blog you might recall that I had a "Slightly Bullish" forecast for this week, citing continued bullish technical momentum. At the time of this writing the S&P 500 is up 1.7% on the week and hitting fresh all-time highs today, so my outlook turned out to be correct. Outside of the recent Momo/FOMO backdrop there were two primary catalysts that assisted the bulls. First, the economic data was firm, highlighted by this morning's better-than-expected monthly jobs report (more on this in the "Economic Data, Rates & the Fed" section below). Secondly, the U.S. struck a trade deal with Vietnam. The agreement established a 20% U.S. tariff on goods from Vietnam, including a 40% transshipping tariff on goods going through Vietnam to the United States. Additionally, the U.S. will not pay any tariffs to access Vietnam's markets. Although the 20% tariff is higher than the prior 10%, its lower than the 46% rate announced back on Liberation Day. Markets interpreted the deal as a net positive, since it provides more clarity on the trade front. However, the impact of higher tariff rates on the U.S. economy or corporate earnings remains unclear for now.

The S&P 500 and Nasdaq Composite closed at fresh all-time highs today, while the Dow Jones and Russell 2000 closed at the highest levels since February. Are we overbought on a near-term basis? Yes. Does that mean that markets can't push higher? No. Bullish momentum tends to feed on itself, especially when markets are at fresh highs, aided by performance chasing and FOMO. However, stocks go down as well as up, and mean version occurs at some point, so it's important for investors to not get lulled into complacency. July seasonality favors the bulls, but next week markets could encounter a test. The 90-day tariff pause by the U.S. ends next Wednesday (July 9th), and assuming President Donald Trump stands by his statement that he will not extend this trade deadline, it seems likely that there will either be a slew of trade deals/frameworks, or some trade turmoil if there are disagreements. Additionally, if additional trade deals are announced, what will the tariff rate be, and will markets respond positively irrespective of the rate? It seems logical to assume that the higher the tariff rate the higher the potential for economic consequence, but markets have largely dismissed any concerns. Given the market's overbought status (more on this in the "Technical Take" section below) and the potential to encounter either some negative trade surprises or a "sell on the news" reaction, I'm in the cautious camp next week. Therefore, my forecast for next week is "Slightly Bearish." The market has been so bullish and resilient recently that I don't expect a significant pullback, hence the "slightly" bearish outlook. What could challenge next week's outlook? If there are trade deals and they are better than expected, this could potentially fuel another leg higher in stocks.

Other Potential Market-Moving Catalysts:

90-day Tariff Pause Ends July 9th

Economic:

• Monday (7/7): no reports
• Tuesday (7/8): Consumer Credit
• Wednesday (7/9): EIA Crude Oil Inventories, MBA Mortgage Applications Index, Wholesale Inventories
• Thursday (7/10): Continuing Claims, EIA Natural Gas Inventories, Initial Claims
• Friday (7/11): Treasury Budget

Earnings:

• Monday (7/7): no reports
• Tuesday (7/8): Immersion Corp. (IMMR), Kura Sushi USA Inc. (KRUS), Penguin Solutions (PENG), Aehr Test Systems (AEHR), Quantum Corp. (QMCO)
• Wednesday (7/9): AZZ Inc. (AZZ), Bassett Furniture Industries Inc. (BSET)
• Thursday (7/10): Delta Airlines Inc. (DAL), Conagra Brands Inc. (CAG), Simply Good Foods Co. (SMPL), Helen of Troy Ltd. (HELE), Levi Strauss & Co. (LEVI), Vista Energy SAB de CV (VIST), PriceSmart Inc. (PSMT), WD-40 Co. (WDFC)
• Friday (7/11): no reports

There was a solid dose of economic data this week which was highlighted by this morning's key monthly jobs report. Both this morning's Nonfarm Payrolls report and the May job openings (JOLTS) data convey labor market health, which is good news for the bulls. However, the Atlanta Fed's GDP "Nowcast" was revised down to 2.5% from 2.9%, driven by continued weak construction spending. Here's the breakdown from this week's reports:

• Nonfarm Payrolls: Rose by 147K which was well above the 106K economists expected. Additionally, there was a two-month net revision of +16K.
• Unemployment Rate: Slid to 4.1% from 4.2% in May and below the 4.3% expected.
• Average Hourly Earnings: Increased 0.2% (in line with estimates) which brings the year-over-year gain to 3.7%.
• Average Workweek:  34.2 vs. 34.3 expected.
• ADP Employment change: -33K vs. +105K expected. This represents the lowest reading since March of 2023.
• Chicago PMI: Decreased to 40.4 from the prior reading of 40.5 and below the 43.0 expected (note: a number below 50 indicates contraction).
• Construction Spending: -0.3% vs. 0.0% expected, representing the fifth straight month of declines.
• JOLTS – Job Openings:  May job openings were 7.769M which was above the 7.30M expected.
• Initial Jobless Claims: Dropped 3K week-over-week to 233K and below the 249K expected. Continuing Claims were unchanged from last week at 1.964M.
• The Atlanta Fed's GDPNow "nowcast" for Q2 GDP was revised down to +2.5% on July 1st from +2.9% on June 27th.

Treasury yields moved up this week, mostly on the short end of the curve due to declining rate cut expectations, resulting in some flattening of the yield curve. Compared to last Friday, two-year Treasury yields rose ~13 basis points (3.87% vs. 3.74%), 10-year yields are up ~6 basis points (4.34% vs. 4.28%), while 30-year yields ticked up ~2 basis points (4.85% vs. 4.83%).

Expectations around potential rate cuts from the Federal Reserve declined this week, mostly due to this morning's strong Nonfarm Payrolls report. Per Bloomberg, expectations for a 25-basis-point cut at the July Federal Open Market Committee (FOMC) have dropped to 5% today from 25% yesterday, while the total 2025 expected 25-basis-point cuts dropped to 2.07 from 2.56 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 but needs to register a couple closes above the 200-day Simple Moving Average (2,175) for a bullish confirmation. The good news for the bulls is the index closed above its 200-day SMA over the past three days. However, the Relative Strength Index (RSI) is in overbought territory and as you can see in the red rectangles shown in the chart below, the index has encountered a near-term pullback when this indicator moves above 70. It's not uncommon to get a re-test of the 200-day SMA from above (also known as a "check back"), but it's also possible that this week's upside breakout persists next week. And while a 72 RSI isn't extreme yet (the RSI on the RUT hit 81 last July), some caution is warranted in my view.  

Near-term technical translation: intermediate-term bullish, near-term cautious

The S&P 500 index (SPX) maintained its bullish "melt-up mode" this week, tallying a 1.7% gain on the week. The upside momentum has been impressive, but it's important to point out that the RSI on the SPX is registering an overbought reading of 75. An overbought RSI reading doesn't mean that a pullback is imminent, but it does suggest that some mean reversion could be approaching. For context, over the past five years the highest RSI readings on the SPX are 82 (September 2020), 82 (December 2023) and 81 (July 2024). Historically when these levels were reached there was a near-term pullback in the range of 2-10%. Outside of these extremes, the SPX does not tend spend a lot of time above 75 before encountering some type of consolidation move lower. Therefore, while RSI won't give you a definitive sell signal, it is suggesting some near-term caution is warranted.

Near-term technical translation: slightly bearish

On June 20th Texas signed into law the establishment of a Strategic Bitcoin Reserve, making it the third U.S. state to create a crypto reserve. More importantly for the crypto community, Texas made a commitment to purchase Bitcoin for the strategic reserve using taxpayer money. While the initial $10M investment isn't a huge stake, Texas is the first state to make such a move. Texas said that it will review the holdings every two years and pledged to not sell any Bitcoin to meet short-term budgetary needs. Some skeptics noted that the state declined to accept Bitcoin for certain payments, such as state licenses or registrations, but the announcement marks another step in broader acceptance of the cryptocurrency.

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 continued to push into all-time high territory this week and market breadth followed. However, although stocks are hitting all-time highs, market breadth remains well below the highs seen back in 2021. On a week-over-week basis, the SPX (white line) breadth jumped to 62.73% from 54.80%, the CCMP (blue line) moved up to 44.82% from 39.68%, and the RTY (red line) rose to 51.40% versus 41.24%.

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 (77 today): Agco Corp. (AGCO - $0.53 to $110.01), Citigroup Inc. (C + $1.43 to $88.19), Goldman Sachs Group (GS + $8.15 to $724.04), Ryder Systems Inc. (R - $0.39 to $171.20), Seagate Technology Holdings PLC (STX - $0.82 to $151.11), Taiwan Semiconductor ADR (TSM + $3.10 to $236.70)

This Week's Notable 52-week Lows (18 today): Anterix Inc. (ATEX + $0.01 to $25.09), Centene Corp. (CNC + $0.46 to $34.24), Chemed Inc. (CHE - $0.68 to $470.56), Erie Indemnity Company Inc. (ERIE + $3.57 to $346.66), Molina Healthcare Inc. (MOH + $1.46 to $240.46), Summit Midstream Corp. (SMC - $0.25 to $25.02)