S&P and QQQ have largely been treading water in recent weeks to finish out the quarter on a positive note, while Equal-weighted S&P 500 finished down for 2Q 2024 as nine sectors lost ground and finished negative. However, given the high percentage of Russell 3k names above their respective 200-day moving average, some minor losses in a largely sideways pattern doesn’t seem to have much negative weight heading into Q3. Given that economic data continues to miss expectations, Treasury yields look to have begun their pullback to test December 2023 lows and US Dollar should be fast approaching in this regard. Overall, while I respect the divergences present in the US stock market, there hasn’t been evidence of any true technical deterioration, and sentiment remains too subdued at a time when seasonality and cycles still show an upward trajectory. I expect the first part of July to lead back to new all-time highs, and suspect that a broad-based rally should be forthcoming.
As mentioned above, the pattern in recent weeks has been largely range-bound for SPX as well as QQQ at a time that Technology is largely still carrying most of the load for US stocks.
Friday’s weakness doesn’t seem too negative given that end of quarter positioning seemed to be a factor that helped bond yields lift despite some ongoing weakness in economic activity.
As this hourly S&P 500 chart from mid-June shows, unless 5447 is broken, it’s hard to get too negative on the course of S&P near-term technicals. Even a move down to 5400 arguably won’t change things materially, and create an even more favorable risk/reward for US Equities between now and mid-July.
S&P 500
Performance figures based on Equal-weighted sectors by Invesco show that only two sectors out of 11 were positive in 2Q: Technology and Utilities. Yet, performance was not abnormally poor in most sectors except for the Consumer-oriented groups which got hit hard.
As can be seen, Technology’s mild pullback early in the week did result in fractionally negative performance. Yet, “Tech” has come back to lead all sectors over the last one-month, and Year-to-Date basis and merely missing first place to Utilities on a three-month timeframe.
Until more evidence of Technology turning down occurs, I don’t see this divergence as being too problematic, as the last month has already shown some improvement in sectors like Real Estate, Communication Services, Consumer Discretionary which had all been hard hit over the last quarter.
While a broad-based rally is possible between now and the Fall, I don’t suspect this means that Technology will underperform. Thus, even if Healthcare and Financials come back sharply, Technology still looks to lead in the weeks and months ahead.
Sector Performance
NASDAQ is entering a very strong period
Following up on my comments last month regarding June and July typically showing better than expected median performance during Election years, it’s right to show just how good the period in early July typically is for Election year performance.
Typically, the first two weeks of July have shown some of the best seasonal performance over the last 40 years (this specific study looks at 1985-2023).
As the chart below shows from Stock Trader’s Almanac, normally the choppiness of June gives way to a sharp rally in the first few weeks of July, before consolidation sets in.
Given the cycle projections (shown later in this report) and DeMark exhaustion which might materialize into mid-July on further strength, I expect that the first part of July might hold true to this picture below and turn in better performance than the back half of July.
NASDAQ
SPX cycle composite looks to trend higher into mid-July as part of a larger rally into early September before a peak
The Cycle composite for S&P 500 still looks to be positive in July, albeit a bit choppy and trades higher in a stair-stepping fashion between now and early September before a decline.
While some investors are expecting a decline given the huge divergence in the sector performance along with growth concerns and political uncertainty, I’m skeptical that much volatility happens until September.
However, any gain in S&P 500 back to 5650 into mid-July would likely face some temporary resistance ahead of some consolidation into the early part of August.
I’ll be on the lookout for any evidence of a breakdown in Equal-weighted S&P 500, and/or evidence of more stocks hitting new 52-week lows, or a more serious erosion in breadth around that time. At present, no real evidence of defensive outperformance has materialized to suggest anything more than just a minor setback ahead of continued strength into this Fall.
SPX Cycle Composite
