Market Insights

Stocks keep climbing as inflation slows and as investors looked for rate cuts by the Federal Reserve.

The S&P 500 rose 0.9 percent between Friday, July 5, and Friday, July 12. The index closed above 5,600 for the first time ever, one week after surpassing 5,500. Eighty-five percent of its members advanced, according to TradeStation Data. That could represent a broadening of gains after a period of dominance by large growth stocks like Nvidia (NVDA). Bond yields fell.

“Reducing [ interest rates ] too late or too little could unduly weaken economic activity and employment,” Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Tuesday. “Elevated inflation is not the only risk we face.”

In effect, he said policymakers are starting to worry about weaker economic data and job growth. It was one of his clearest indications that they’re closer to lowering interest rates.

Two days later, the Bureau of Labor Statistics reported that the consumer price index (CPI) fell 0.1 percent in June. The reading was 0.2 percentage point less than expected, and the lowest since May 2020. Services like shelter and transportation slowed sharply. That’s a potential sign of inflationary pressures easing across the economy.

Real Estate, Utilities Surge

Last week’s drop in borrowing costs drew money into groups that benefit from lower interest rates. That included real estate investment trusts, housing and utilities. Solar-energy stocks, banks and biotechnology also rallied.

Enphase Energy (ENPH) led the S&P 500 and had its biggest weekly gain in almost two years. Some of the move followed bullish commentary by Goldman Sachs.

Corning (GLW) leaped after raising its sales guidance. The fiber-optic company said AI is fueling datacenter demand for its networking gear.

Housing-related names like Builders FirstSource (BLDR), Mohawk Industries (MHK) and D.R. Horton (DHI) were other big gainers in the S&P 500.

Chipotle Mexican Grill (CMG) was the worst performer after completing a historic 50-for-1 stock split. Meta Platforms (META) and Netflix (NFLX) also lagged. META slid as money left megacaps and Edgewater Research cited a potential advertising slowdown.

Wells Fargo (WFC) declined after earnings matched expectations. Delta Airlines (DAL) also dropped after warning of increased competition and price cuts.

Bullishness Widespread

Last week featured several measures of widening bullishness.

For example, Yardeni Research raised its year-end price target on the S&P 500 from 5,400 to 5,800. Oppenheimer went from 5,500 to 5,900. Yardeni cited uninvested cash in money market funds and Oppenheimer pointed to strong earnings.

Factset crunched numbers based analyst price targets at the individual-company level. They implied the S&P 500 could advance another 7 percent to 6007 in the next 12 months, according to the research firm.

The American Association of Individual Investors separately reported the highest reading of bullish sentiment since late March and the lowest level of bearishness since late February.

Those points may suggest optimism is getting more commonplace. That could mean there’s less potential for new money to enter the market and more risk of profit taking.

Charting the Market

Most patterns on the S&P 500 appear potentially bullish, despite its extended move to the upside.

First, it’s made higher weekly highs and higher weekly lows for six straight weeks. That could be viewed as a longer term uptrend.

Second, the advance/decline line made a new high on Friday — the first new high since the index broke out on May 15. TradeStation data also shows the number of new 52-week highs increasing. Are more stocks participating in the rally?

Third, Wilder’s Relative Strength Index (RSI) has remained at or near overbought readings. That resembles other periods of strong advances, like last November and December.

Fourth, the index has remained in tight ranges without significant pullbacks. That’s also potentially similar to late 2023.

Other charts may support the bullish move in the S&P 500. For example, the yield on two-year Treasury notes reflected rate-cut optimism by falling to a three-month low. Cboe’s Volatility Index (VIX), which rises at times of fear, is sitting at pre-pandemic lows.

The Week Ahead

This week has an unusual mix of political events, more earnings and more commentary from the Fed. The housing sector features several reports.

China’s communist party begins its “third plenum” today. The four-day meeting could potentially result in announcements about economic or financial stimulus. The Republican National Convention will also be underway in Milwaukee.

Goldman Sachs (GS) reports earnings and Fed Chair Powell speaks at 12:30 p.m. ET.

Tuesday brings retail sales and NAHB’s homebuilder sentiment index. Bank of America (BAC), Morgan Stanley (MS) and UnitedHealth (UNH) issue quarterly results.

Wednesday features housing starts, building permits and crude-oil inventories. Johnson & Johnson (JNJ), ASML (ASML) and United Airlines (UAL) are some of the noteworthy earnings.

Thursday has results from the first major growth stock Nasdaq-100 stock: Netflix (NFLX). Initial jobless claims are also due.

American Express (AXP), Schlumberger (SLB), Halliburton (HAL), Comerica (CMA) and Travelers (TRV) are the big names Friday.

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