A better than expected CPI report sent yields and the dollar lower and it flipped a switch on Wall Street as small caps took a major step forward while the hot big tech stocks reversed lower. Despite the 0.88% loss in the S&P 500, 393 of the 500 stocks in that index were up while only 107 were down, so it was a complete turnaround from the recent top heavy activity.
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First things first - one day does not change a trend, but oh what a day it was. I had been asking for weeks, if not months, whether the small caps can rally if the high flyers pulled back, and yesterday we got an answer. However, we've had a few one day wonders from small caps this year and a few of the previous ones failed, so the fact that they held onto the gains yesterday meant something, but the Magnificent 7, and the like, may not go away easily.
It was the best day for the Russell 2000 and the S-fund since December. The Russell is testing the March highs while the S-fund's DWCPF isn't quite there yet.
As for the internals, it was another flip flop. The advancers easily outpaced the decliners, even on the Nasdaq which was down 2% yesterday. New highs also flipped to a rare very positive ratio.
As I mentioned the other day, the small caps may not be able to make a move until the small regional bank stocks (KRE) get onboard. This week they have and yesterday's 4.2% gain was one of the main catalysts for the S-fund's gains.
The Equal Weighted S&P 500 index was up 1.2% while the S&P 500 (yup, same stocks) was down 0.88%. Another flip flop.
Does this mean everyone should move out of the C-fund and into the S-fund? It may be a shift but something tells me the demand for the 2024 winners will not disappear that easily and lower prices will bring in dip buyers, but it could be the start of a rotation into the broader indices, which has been long overdue.
The CPI was better than expected bringing inflation concerns almost to a halt, and that sent yields and the dollar lower as it all but guarantees an interest rate cut in September, if not at the July meeting at the end of the month. There was some stubbornly strong weekly jobless claims data that may have helped yields hold above the recent lows. However, the trend has been lower and that is bullish for bonds and the F-fund.
Big bank earnings will start coming in today and the next 4 - 6 weeks will be filled with 2nd quarter earnings reports so there will be plenty of catalysts before the next Fed meeting at the end of July.
The S&P 500 (C-fund) was down sharply yesterday although it barely made a dent in the chart after the 2+ month rally off the April lows. There was a negative outside reversal day and those tend to precede some kind of pullback. It is a now back in that blue trading channel and there is some room below if it wants to test the lower end of the channel while it builds some strength after the recent run higher.
The EFA (I-fund) was up big early but as the dollar gained back some of its early losses, the I-fund gave up some gains and failed to close above the previous highs while it attempted to fill Thursday's open gap. It could be a double top while it deals with some of those open gaps, but it may depend on what the dollar does next.
BND (bonds / F-fund) rallied to new multi-month highs with yields falling sharply. The blue channel remains intact, which is good news for the F-fund, but like the I-fund chart, there are open gaps below that could always draw attention in the short-term.
Thanks so much for reading! Have a great weekend!
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
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Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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First things first - one day does not change a trend, but oh what a day it was. I had been asking for weeks, if not months, whether the small caps can rally if the high flyers pulled back, and yesterday we got an answer. However, we've had a few one day wonders from small caps this year and a few of the previous ones failed, so the fact that they held onto the gains yesterday meant something, but the Magnificent 7, and the like, may not go away easily.
It was the best day for the Russell 2000 and the S-fund since December. The Russell is testing the March highs while the S-fund's DWCPF isn't quite there yet.
As for the internals, it was another flip flop. The advancers easily outpaced the decliners, even on the Nasdaq which was down 2% yesterday. New highs also flipped to a rare very positive ratio.
As I mentioned the other day, the small caps may not be able to make a move until the small regional bank stocks (KRE) get onboard. This week they have and yesterday's 4.2% gain was one of the main catalysts for the S-fund's gains.
The Equal Weighted S&P 500 index was up 1.2% while the S&P 500 (yup, same stocks) was down 0.88%. Another flip flop.
Does this mean everyone should move out of the C-fund and into the S-fund? It may be a shift but something tells me the demand for the 2024 winners will not disappear that easily and lower prices will bring in dip buyers, but it could be the start of a rotation into the broader indices, which has been long overdue.
The CPI was better than expected bringing inflation concerns almost to a halt, and that sent yields and the dollar lower as it all but guarantees an interest rate cut in September, if not at the July meeting at the end of the month. There was some stubbornly strong weekly jobless claims data that may have helped yields hold above the recent lows. However, the trend has been lower and that is bullish for bonds and the F-fund.
Big bank earnings will start coming in today and the next 4 - 6 weeks will be filled with 2nd quarter earnings reports so there will be plenty of catalysts before the next Fed meeting at the end of July.
The S&P 500 (C-fund) was down sharply yesterday although it barely made a dent in the chart after the 2+ month rally off the April lows. There was a negative outside reversal day and those tend to precede some kind of pullback. It is a now back in that blue trading channel and there is some room below if it wants to test the lower end of the channel while it builds some strength after the recent run higher.
The EFA (I-fund) was up big early but as the dollar gained back some of its early losses, the I-fund gave up some gains and failed to close above the previous highs while it attempted to fill Thursday's open gap. It could be a double top while it deals with some of those open gaps, but it may depend on what the dollar does next.
BND (bonds / F-fund) rallied to new multi-month highs with yields falling sharply. The blue channel remains intact, which is good news for the F-fund, but like the I-fund chart, there are open gaps below that could always draw attention in the short-term.
Thanks so much for reading! Have a great weekend!
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
