Near-term and Intermediate-term technical trends remain bullish for US Equities, and the push back to new all-time highs this past Thursday helped to reverse the minor downtrend that had begun to emerge earlier in the week for DJIA and Equal-weighted SPX. Technology’s strength has helped to drive recent performance and has solidified this sector as being the best-performing out of all major S&P sectors on a 1-week, 1-month, 3-month, and 6-month basis. However, the strong relative strength in other sectors like Financials, and Industrials has helped to add some appeal to this rally over the last month, and the broadening out helps to add conviction to its durability. Despite the minor bounce in both Treasury yields and the US Dollar in recent weeks, no deterioration has happened to risk assets, and sentiment has not yet become bullish despite a 25% SPX rally in the last 14 weeks. Overall, it’s still right to favor that this rally can continue into August before some consolidation gets underway, which gels with post-Election year seasonality.
One of the more important charts to keep a close eye on in the weeks/months ahead revolves around long-term inflation expectations, which remain largely subdued despite the rise in 1, and 2-year inflation swaps.
While the market has yet again pushed back to new all-time highs this past week, with Friday’s intra-day push to new highs marking the third of the week and the sixth of July, many investors continue to harbor inflation concerns, despite not much evidence of this having come to fruition.
The University of Michigan data from Friday morning showed a pronounced drop in 1-year and 5-10 year inflation expectations, and the 10-year Inflation breakeven chart also remains at largely the same levels as it’s been since 2022. If this were to exceed 2.5%, this might begin to become a problem for the market given that four rate cuts are now expected between now and next Summer, but at present this data seems benign.
USGBE10 Index
Can the Equal-weighted SPX and DJIA join the SPX back at new highs?
The charts I’m watching the closest in the next couple weeks don’t involve the S&P 500, but rather the Equal-weighted SPX and DJIA which have hovered near all-time highs, but yet have not yet achieved breakouts.
Seeing both of these indices push back to new highs would help to add even more intermediate-term conviction to the rally, as thus far only the ^SPX and QQQ have managed this feat.
The late week rebound helped RSP to finish the week with just a fractional loss, and I suspect that next week could bring about a push to test former all-time highs at 187.87.
As understood by practitioners of Technical Analysis, the more indices that can push to new all-time highs to eliminate divergences, the healthier the quality of the rally is. Thus far, it’s been only SPX and QQQ, but the broad-based participation in the last month has been helpful and will continue to be something to keep a close eye on in the weeks ahead.
Invesco S&P 500 Equal Weight ETF
Utilities sector has pushed back to new all-time highs and looks quite appealing on a three-month basis
It’s interesting that Utilities has pushed back to new all-time highs this past week given the ^SPX’s similar move to new highs, but I don’t suspect its relative strength has much to do with defensive trading.
Rather, this strength largely looks to be concentrated in many of the independent power producers like NRG and VST which have helped to provided much of this year’s strength in the Utilities sector.
Given that sectors like Equal-weighted Consumer Staples, REITS, and Healthcare have not made a similar move, I suspect that it’s still correct to say there remains a notable absence in defensive trading in this past quarter’s rally.
Technically speaking, however, this does appear like a very healthy move back to new highs of this sector, and I expect that even in the seasonally weak period approaching from August into October, the Utilities sector likely outperforms.
Thus, this looks like an excellent risk/reward to consider for investors in the months ahead, and I remain Overweight the Utilities sector.
My favorite 10 Utilities are: NRG, CEG, NI, CNP, VST, ETR, LNT, AEE, WEC, and SO.
As shown below, this push to new highs likely could result in upside acceleration given the bullish formation that has formed over the last few years. The bullish base since 2022 gave way to a minor Cup and Handle pattern that was just resolved with an upside breakout this week.
Overall, I am quite bullish on Utilities, and expect XLU pushes up to near $90.
SPDR Select Sector Fund – Utilities
Utilities vs. Equal-weighted SPX appears to be turning back higher
One important chart to further illustrate the appeal of the Utilities sector is shown below with a relative chart of RYU vs. RSP.
The outperformance in RYU began early last year before peaking in April as the stock market made a bottom.
It underperformed over the last few months before stabilizing at a key area of relative trendline support. This past week’s push back to multi-week highs from this uptrend seems to favor that the Utilities sector can begin to climb back to new relative highs in the months ahead.
While weekly MACD remains negatively sloped, this past week’s push to new all-time highs in XLU likely will drive Utilities higher more quickly than the Equal-weighted SPX which remains under all-time highs.
While I suspect the Equal-weighted S&P 500 ETF RSP will challenge all-time highs likely in the next week, it’s more appealing to favor the sector (in this case, Utilities) which has already achieved this move and likely outperforms.
The bounce in relative terms of the Utilities group does not necessarily signal a poor US Equity market, as this outperformed all last year during a time when stock indices also rose.
However, it likely will provide better relative strength than most of the US stock market in my view in the event that indices start to weaken this fall. Thus, there are multiple reasons to find this sector appealing heading into a seasonally weak time.
RSPU/RSP
