July 8, 2024
Good morning,
Despite last week’s shortened trading week (3½ days vs 5) and tons of economic data, large-cap equity indices quietly scored another week of gains almost completely on the back of big tech. Bonds did well too (yields down, prices up), on softer-than-expected economic data – primarily June’s employment numbers on Friday. It is a market that just won’t let go of a good theme. The continued tech “melt-up” was the primary driver of gains all week.
Let’s look at markets by time frames this morning:
Overnight – quite a few things traders were focused on didn’t happen this weekend:
• Joe Biden didn’t show any signs of stepping aside.
• France’s elections didn’t produce a clear enough result for investors to draw firm conclusions.
• Chinese stocks didn’t break their miserable run of declines.
• Bitcoin didn’t sink any further than Friday’s low.
This week – the Fed blankets the country speaking, key economic data prints, and earnings season begins:
• Fed speakers galore, led by Fed Chair Powell, testifying in front of Congress for 2-days.
• Key inflation data, CPI, and PPI Thursday and Friday.
• The new earnings season kicks off Friday with some major Banks announcing.
This summer –
• Historically, when “melt-ups” end, market tops are usually months away (as opposed to immediate).
• The list of divergences not confirming new highs on major indices is growing, not shrinking – as mentioned it is an unhealthy sign at best
Overall
The short-term (days, weeks) trend is upward, but sentiment suggests a lot of buying is likely satisfied.
The cyclical (months, quarters) trend is also upward but unconfirmed by the tape; breadth is now negative, and leadership is extremely concentrated.
The secular trend (years) is also upward but is extended based on valuations.
Market tops are not point-in-time events. They are gradual processes usually taking months to unfold. The evidence that we are at the beginning of one is growing.
Be well,
Mike
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