Market Insights

Stocks keep hitting new highs as technology comes back to life.

The S&P 500 rose 3.5 percent in June, while the Nasdaq-100 climbed 6.2 percent. Software companies, chipmakers and other large technology companies broadly drove the gains. As a result, the technology sector had its biggest monthly gain since November.

Two big drivers seem to be at work. First, AI optimism continued to spread. A semiconductor trade group raised its forecast early on June 5 (see below). Five days later, Apple (AAPL) unveiled plans to integrate AI services into iOS. That propelled the iPhone maker to new record highs above $200.

Other technology companies like Adobe (ADBE), CrowdStrike (CRWD), Oracle (ORCL) and Autodesk (ADSK) had positive news. Several benefited from the spread of AI.

Slower inflation was the second big catalyst. Consumer prices, producer prices, export prices and import prices were all lower than expected. Weak housing data also suggested that shelter costs — the biggest item in the consumer price mix — could finally ease.

Investors responded to the news by pushing down bond yields and looking for the Federal Reserve to cut rates in September.

Charting the Market

Traders may see potentially negative and positive patterns on the S&P 500 as the new quarter begins.

The main negative is potential resistance at 5,500. The index pushed above that level on June 20 and again last Friday. It got rejected both times, creating bearish outside candlesticks. (That’s when prices make a higher high and lower low.) Those are potential reversal patterns.

On the positive front, bulls may interpret the succession of higher highs and higher lows as an uptrend. They may also notice how Wilder’s Relative Strength Index (RSI) has remained near overbought readings without significant drops. That resembles the action in November and December when the current rally began.

Narrow price action without significant drops could also reflect a relative lack of selling pressures. (Notice the tight, sideways price action on the chart below.) Traders may watch the June 13 low of 5402 and the June 12 high of 5447 for potential support.

Interest rates could be an even bigger consideration with the yield on the 10-year Treasury note sitting at a key long-term level around 4.32 percent. Further declines from here could potentially support equities, while increases could hurt sentiment. That heightens the importance of upcoming economic events like non-farm payrolls, Fed Chair Jerome Powell’s testimony and consumer prices. (See table below.) Earnings season also begins on July 12 with major banks like JPMorgan Chase (JPM).

Big Movers in June

This week is abbreviated week by Independence Day on Thursday, July 4.

Sector Watch

Key Economic Events in June

Below are some key economic events from last month.

• Job growth surprises, even as unemployment grows: U.S. employers added 272,000 jobs in May, beating estimates by 87,000. The unemployment rate unexpectedly increased to 4 percent, the highest in 2-1/2 years. The unusual report suggested the labor market is returning to balance, even as job growth accelerates. Healthcare contributed to the gains. (6/7)
• Inflation slows more than expected: The consumer price index (CPI) was unchanged in May, better than the 0.1 percent increase forecast by economists. It was the second-lowest reading of the post-pandemic era. (6/12) Producer prices, export and import prices were also lower than expected.
• The Federal Reserve scales back rate cuts: The Fed indicated it will lower interest rates just once in 2024, down from its earlier estimate of three cuts. Still, the market looked past the news on signs of slowing inflation. (6/12)
• Retail sales miss and April is revised lower: Retail sales increased by 0.1 percent in May, below the 0.2 percent expected by economists. Bars, restaurants and furniture stores contributed to the weakness, although some of the drop resulted from lower fuel prices. April’s unchanged reading was revised to -0.2 percent. (6/18)

What Experts Are Saying

Below are some noteworthy commentaries:

• World Semiconductor Trade Statistics raised its growth forecast for chip sales this year. The trade group now sees a 16 percent increase, up from 13.1 percent in November. Memory circuits are expected to account for most of the expansion, with the Americas as the leading region. (6/5)
• A “wall of money” could enter the stock market beginning in July, according to Goldman Sachs managing director Scott Rubner. The opinion was based on seasonal patterns. (6/5) The bank’s chief U.S. equity strategist, David Kostin, separately raised his price target on the S&P 500 from 5,200 to 5,600, citing higher earnings and the potential for multiple expansion. (6/14)
• Wall Street analysts expect 9 percent earnings growth for S&P 500 companies in the second quarter, according to FactSet. It would be the strongest increase in more than two years. Estimates increased 0.2 percent since March 31, while they typically decline by 3-4 percent. (6/14)
• The Fed needs to lower interest rates “sooner rather than later,” Mohamed El-Erian wrote in the Financial Times. El-Erian, an economist for Allianz who previously worked for PIMCO and the International Monetary Fund, said the timing of a cut will have an important influence on interest rates and the economy. He added that “mounting, though not yet universal, data signal economic weakening.” (6/17)
• Citi raised its year-end price target on the S&P 500 from 5,400 to 5,600. The firm noted NVDA’s contributions to earnings growth. (6/18)

Popular Futures Contracts in June

Newsworthy Events This Month

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