Weekly Trader's Outlook

If you read last week's blog you might recall that I had a "Slightly Bearish" forecast for this week, citing waning momentum in the SPX, coupled with heightened uncertainty surrounding the Israel/Iran conflict. At the time of this writing the S&P 500 is up over 3.0% on the week and hitting fresh all-time highs today, so my outlook turned out to be wrong. What happened? In short, following a U.S. strike on Iran's nuclear sites last weekend, Israel and Iran subsequently entered into a ceasefire agreement and stocks rallied on the news. I'm happy that my forecast is wrong from a humanitarian perspective, but it shows how hard it can be to provide a forecast in these headline-driven markets.

Speaking of headlines, President Donald Trump announced 15 minutes ago that he is immediately suspending trade talks with Canada over the country's plan to implement a digital services tax. Trump posted on his social media platform, "Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately. We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period." Also on the trade front, President Trump seemed to downplay the importance of the upcoming expiration of the 90-day tariff pause on July 9th stating, "we could extend it, we could make it shorter, I'd like to make it shorter."

On the economic front, the data was mixed this week. First, this morning's personal consumption expenditures (PCE) report came in warmer than expected on the core readings, though Treasury yields didn't move dramatically. Personal Income and Spending also came in soft, which led to a downward revision in the Atlanta Fed's GDP "Nowcast." However, Initial Claims cooled off from a recent upswing which provides some relative relief on the labor front (more on this in the "Economic Data, Rates & the Fed" section below).

At the time of this writing (3:00 p.m. ET), stocks have taken a midday turn lower following the potential breakdown in trade talks with Canada referenced above (DJI + 222, SPX -3, COMPX -37). After hitting a fresh all-time intraday high of 6,187 earlier in today's session, the S&P 500 may not technically close at a record high today since there's still an hour left of trading in today's session. Additionally, the Russell 2000 has dropped back below its 200-day SMA following the news which shifts the technical to a more cautious stance (more on this in the "Technical Take" section below). Canada is an important trading partner for the U.S. and while there could be some sort of resolution to the current conflict over the digital sales tax by Monday, it's understandable why the news triggered some intraday profit taking with indices hovering at all-time highs. Next week will be holiday-shortened due to the July 4th holiday, so the monthly jobs report will be delivered on Thursday rather than Friday, and the report usually moves markets. While the potential for continued trade disruption with Canada is a risk for stocks in my view, I'm not sure that today's hiccup will be enough to deter bullish momentum next week. Therefore, my forecast for next week is "Slightly Bullish." What could challenge next week's outlook? If the trade rhetoric with Canada heats up next week, or there are any other trade-related negative headlines, this could weigh on investor sentiment and translate into a down week for stocks. The other potential negative catalyst for stocks would be a significant miss on the headline Nonfarm Payrolls figure or a surprise jump in the Unemployment Rate.

Other Potential Market-Moving Catalysts:

Economic:

• Monday (6/30): Chicago Purchasing Managers' Index (PMI)
• Tuesday (7/1): Construction Spending, ISM Manufacturing Index
• Wednesday (7/2): ADP Employment Change, EIA Crude Oil Inventories, MBA Mortgage Applications Index
• Thursday (7/3): Nonfarm Payrolls, Unemployment Rate, Average Workweek, Average Hourly Earnings, Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Factory Orders, Trade Balance
• Friday (7/4): -no reports-

Earnings:

• Monday (6/30): Progress Software Corp. (PRGS), Barnes & Noble Education Inc. (BNED), Petmed Express Inc. (PETS)
• Tuesday (7/1): MSC Industries Direct Co. (MSM), Constellation Brands Inc. (STZ), Greenbrier Companies Inc. (GBX)
• Wednesday (7/2): UniFirst Corp. (UNF), Radius Recycling Inc. (RDUS), Franklin Covey Co. (FC)
• Thursday (7/3): -no reports-
• Friday (7/4): -no reports-

There was a moderate dose of economic data this week which delivered something for both the bulls and the bears. On the bull's side, Initial Claims pulled back below 240K after seeing a recent uptrend over the past couple of weeks and Durable Goods orders were strong. And for the bears, this morning's core PCE data came in above estimates, Personal Income and Spending were weak, which moved the Atlanta Fed's GDP "Nowcast" down t0 2.9% from a prior reading of 3.4%. Here's the breakdown from this week's reports:

PCE Prices: Headline increased 0.1% month-over-month (MoM), putting the year-over-year (YoY) gain at 2.3%, which were both in-line with estimates.

Core PCE Prices: Excluding food and energy, MoM increased 0.2% (above the +0.1% expected), which puts the YoY gain at 2.7% (above the +2.6% expected).

Personal Income: -0.4% vs. 0.3% expected

Personal Spending: -0.1% vs. +0.1% expected

Q2 GDP – 3rd Estimate:  Was revised down to -0.5% from a prior reading of -0.2%.

Durable Orders: Rose 16.4% to an all-time high of $343.59B in May (and well above the +7.5% expected), largely driven by orders for transportation equipment. Excluding transportation, Durable Goods increased 0.5% (above the +0.1% expected).

New Home Sales: 623K vs. 690K expected

Consumer Confidence: 93.0 vs. 99.5 expected

University of Michigan Consumer Sentiment: 60.7 vs. 60.5 expected.

Initial Jobless Claims: Dropped 11K to 236K from last week's (upwardly revised) 247K and below the 249K expected. Continuing Claims increased 37K from last week to 1.974M.

The Atlanta Fed's GDPNow "nowcast" for Q2 GDP was revised down to +2.9% today from +3.4% on June 18th.

Treasury yields eased this week, resulting in some steepening of the yield curve since the front end of the curve declined relatively more than further dated yields. Compared to last Friday, two-year Treasury yields eased ~16 basis points (3.74% vs. 3.90%), 10-year yields are down ~11 basis points (4.26% vs. 4.37%), while 30-year yields are lower by ~8 basis points (4.81% vs. 4.89%).

Expectations around potential rate cuts from the Federal Reserve increased this week, mostly due to some relatively dovish commentary from Fed Governor Michelle Bowman and Chicago Fed President Austan Goolsbee earlier in the week. Per Bloomberg, expectations for a 25-basis-point cut at the July Federal Open Market Committee (FOMC) have moved up to 20% from 16%, while the total 2025 expected 25-basis-point cuts is up to 2.55 from 2.05 (both on a week-over-week basis).

Over the past couple of weeks, I noted that the Russell 2000 (RUT) appeared to be breaking out from a (bullish) inverse head-and-shoulders pattern but needs to clear near-term resistance at the 200-day Simple Moving Average (2,174) for a bullish confirmation. At the time of this writing the RUT is above this indicator, but not decidedly so and IWM volume hasn't been above average, which is what you'd like to see accompany an upside breakout. Therefore, the near-term technical outlook is bullish, but it probably makes sense for the RUT bulls to wait for a couple of closes above the 200-day SMA before declaring victory. The bulls would also likely want to see more volume confirmation as well.

Near-term technical translation: bullish

At the time of this writing the S&P 500 index (SPX) is up 3.5% on the week and currently trading at fresh all-time highs. The milestone has been assisted by relative strength from the technology sector, as evidenced by the fresh all-time highs in the Nasdaq 100 (NDX) hit earlier in the week. While a fresh record in the SPX is bullish, the Relative Strength Index (RSI) is a little warm at 70.50, so some near-term digestion of gains could be in play next week (hence the "slightly" bullish outlook).

Near-term technical translation: slightly bullish

On Wednesday, the Federal Housing Finance Agency (FHFA) ordered Fannie Mae and Freddie Mac to begin preparing to accept cryptocurrency as an asset for single-family mortgage loan risk assessments. FHFA Director William Pulte stated in a social media post, "After significant studying, and in keeping with President Trump's vision to make the U.S. the crypto capital of the world, today I ordered the Great Fannie Mae and Freddie Mac to prepare their businesses to count cryptocurrency as an asset for a mortgage." The announcement marks another step in the Trump administration's initiatives aimed at broadening acceptance of cryptocurrency in the U.S. Strategy co-founder Michael Saylor praised the news, calling it, "a defining moment for institutional BTC adoption and collateral recognition."

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 moved higher 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 54.80% from 48.40%, the CCMP (blue line) moved up to 39.68% from 35.23%, and the RTY (red line) rose to 41.24% versus 34.72%.

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): Broadcom Ltd. (AVGO - $0.95 to $269.22), Coinbase Global Inc. (COIN - $16.02 to $359.04), Goldman Sachs Group (GS - $0.06 to $687.10), Microsoft Corp. (MSFT - $1.02 to $496.43), Netflix Inc. (NFLX + $3.03 to $1309.70), Walt Disney Co. (DIS + $0.30 to $121.76)

This Week's Notable 52-week Lows (18 today): American Woodmark Corp. (AMWD + $0.21 to $51.12), Conagra Brands (CAG + $0.12 to $20.62), Clorox Company (CLX + $0.64 to $118.65), General Mills Inc. (GIS + $0.38 to $50.75), PepsiCo Inc. (PEP + $1.75 to $129.97), Winnebago Industries Inc. (WGO + $0.46 to $29.09)