The S&P 500 flirted with all-time highs for much of last week, finally setting a new high-water mark on Friday with a close at 6,173.07. This was not a surprise, given Bitcoin’s setting a new all-time high about a month ago, on May 22. As Fundstrat Head of Research Tom Lee has previously noted, Bitcoin has been a leading indicator for equities of late. Lee had also noted that non-recession waterfall declines, such as the one we saw after the April 2 “Liberation Day,” have tended to be followed by V-shaped rallies.
Head of Technical Strategy Mark Newton reminded us that “as always, trying to time stocks with economic data is ill-advised, and the push to new highs by SPX has momentum and signs of broad-based participation that makes it tough to immediately fade.”
In fact, Newton viewed this broadening participation as perhaps more noteworthy than the S&P 500’s advance to new all-time highs. “A lot of people, even myself, thought that at new all-time highs, you would probably stall out,” he admitted during our weekly research huddle. “Now I’m questioning that, just given the degree of broadening out in the rally that we’ve seen. In my view, this week’s big takeaway is that we have started to see evidence of the market trying to broaden out a bit, which had not happened throughout May.”
Expanding on his revised view, he noted that “historically, we have seen technology outperform, but now we’re actually seeing financials break out, which, of course, is the second largest sector within the S&P at 14%. Over the last week, when you look at what’s outperformed, it’s been financials up over 3% – a very, very good sign to me. Industrials has snapped back almost 3%. Discretionary up around 2.4%. These are great signs for sectors largely that had not participated before.”
Although retail investors, particularly younger cohorts, appear to be participating in this rally, institutional players largely remain on the sidelines. For this reason and more, Lee said, “I do think that at the end of the day, we are at the start of a new bull market” with upside potential still untapped.
Chart of the Week
Federal Reserve Chair Jerome Powell delivered his biannual testimony to both chambers of Congress last week, with Republicans questioning Powell about why the central bank has yet to cut rates, despite recent data showing progress on inflation (as seen in our Chart of the Week.) Powell gave what Lee thought was an unexpectedly dovish response: he told senators that “a one-time [increase in the price level] could be the base case” before pointing out that the majority of Federal Open Market Committee members still expect to cut rates before the end of the year. For his part, Lee argues that tariffs shouldn’t be viewed as inflationary at all. “Inflation tends to be driven by an imbalance of supply versus demand – oil shocks, for example,” but in comparison, “tariffs are a one-time price rise and [thus] unlikely to be inflationary.”
AAII data (American Association of Individual Investors) continues to show bearish sentiment being quite elevated for the second straight week and the negativity on both AAII, Fear and Greed and other retail polls shows bearish sentiment being the highest since 2022. Of course, this doesn’t imply that markets necessarily have to bottom right away, but suspect that this is close. Note, there is no evidence of capitulation meaning abnormal downside volume or high Equity Put/call data, and this is not always necessary before markets turn. Last week showed 57% Bears and 19% bulls, for a net negative spread of around 38% which is extreme. See this chart where the last time markets were at similar levels of fear was following the bear market of 2021-2022.
NVDA 1.48% has arrived at an important juncture today, higher by 3.3%, and is testing all-time highs. At current levels, NVDA would make a new all-time high close, but remains under its all-time intra-day highs of $153.13 achieved on 1/7/25. This is an important stock within SPX and QQQ, the highest weighting in SPX at nearly 7%, so how this responds to current levels could be important as to whether the SPX can join the NASDAQ 100 index back at new all-time highs. Technically speaking, regardless if NVDA stalls here briefly, a move back to new all-time highs should be coming soon and likely drives this eventually back to $180. The ability to close over $153.13 will be important as to whether this can immediately push higher, vs. stalling out, making this a key area to watch this week for investors.
Treasury Secretary Bessent today extended the extraordinary measures to July 24 to avoid a US government default as the country hits the debt ceiling. He urges Congress to pass the BBB which contains a multi trillion dollar increase in the ceiling before they leave for the traditional August break.
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