Regardless of the negatives of Monday’s downdraft, along with the ongoing worry of tariffs, US indices continue to hold up in resilient fashion, with SPX having closed within 85 points of the early month all-time highs. The recent consolidation over the last two months has not served to derail the intermediate-term rally, and while I still can’t rule out the possibility of a pullback in the short run, this was always thought to be a temporary affair which should make SPX attractive on weakness over the next 1-2 weeks. At the current time, SPX is running out of time to engineer a selloff and can’t afford to move much higher without postponing any further selloff and steering indices back to new all-time highs.
Markets have been able to weather the threat of tariffs quite well lately, with no evidence of trend deterioration in the intermediate-term trends of either SPX or QQQ.
While the near-term pattern remains understandably choppy, with price still under all-time highs from two weeks ago as well as under levels achieved in early December 2024, this week’s rally has carried SPX to within 40 points of SPX’s all-time weekly high close achieved back on 1/24/25.
As this weekly chart shows below, despite the slowdown in momentum and deterioration in breadth seen since last November, there has been no material break of the ongoing trend.
Regaining strength in Technology should eventually occur, which would help SPX begin to catch up with recent strong performance out of Europe, but for now the strength in Financials and Healthcare have been helpful towards helping SPX hold up at a time when many exogenous events have threatened to derail the rally.
Overall, remaining above 5773 keeps the SPX in excellent technical shape, and a weekly close back above 6121 should help to drive prices up to 6300.
S&P 500 Index
Treasury yields start to break down
While most investors remain concerned about the potential for tariffs, and most have expressed concern that these would be inflationary, Treasury yields have other plans.
The yields on ^TNX -2.02% , the US Treasury Note index, have violated uptrend line support since last September’s lows.
This is arguably a bearish development for Treasury yields, which should eventually result in the US Dollar also turning sharply lower.
Five, 10, and 30-year Treasury yields have all begun to rollover meaningfully in recent days, breaking their respective uptrends from last Fall.
The 10’s-2’s curve has flattened out over the last month, with this spread falling from over 40 basis points (b.p.) to a current level of 22 b.p. I expect that the 10’s-2’s curve might reach 19 b.p. before starting to re-steepen. This might allow 2-yr. yields to play catch-up a bit and pull back to join the decline seen in the back end of the curve.
The trend breakdown in TNX is shown below.
US Government Bonds
SPY has made a temporary trend violation vs. TLT
Interestingly enough, given the weakness in large-cap Technology lately, the ratio charts of SPY vs TLT have just broken the steep uptrend in this relative chart since last Fall.
The fact that yields broke down under trendline support should help this recent ratio spread continue down over the next couple weeks.
Thus, in the short run, Treasuries might be able to rise at a quicker pace than Equities, largely due to the lack of stabilization just yet in Technology.
While I expect Tech to eventually “kick into gear” and help SPY 0.42% , it looks likely that some short-term outperformance could occur in Treasuries vs. Equities.
Charts of TLT 1.67% broke out above technical trendline resistance as of Wednesday’s close, and I like favoring strength in both Treasuries and Equities over the next few months.
However, until Technology can show a bit more stabilization, it looks more likely that Treasuries could outperform Equities in the month of February.
SPY/TLT
Large-cap Growth likely to stabilize and turn back up vs. Value after recent weakness
The fall in interest rates likely could cause Technology to begin to outperform, and I suspect that the recent weakening in Growth vs. Value in Large-caps proves short-lived.
This Optuma chart shows the recent underperformance in Growth vs. Value since last year’s Election, which I feel should prove temporary.
This uptrend line has contained prior pullbacks within this uptrend and should also be successful in causing some stabilization and a higher turn back in Growth.
Overall, Large-cap Growth remains attractive vs. Value, and we expect this ratio to begin to turn back higher in the weeks to come.
iShares Russell 1000 Growth ETF / iShares Russell 1000 Value ETF
