Good morning,
June came to a close mid-week last week, just as investors were preparing for the extended holiday weekend and escaping the Northeast heat. For what is historically one of the market’s weaker months, returns were generally better than average—everywhere except technology, somewhat ironically.
The defining theme of June was profit-taking in technology stocks, with much of those proceeds appearing to rotate into more defensive sectors such as Consumer Staples, Healthcare, and Utilities. The five equity indices I typically follow in these Morning Notes reflected that rotation:
- Nasdaq: -2.75% (technology-heavy)
- Russell 2000: +3.74% (small-cap, relatively low technology exposure)
- S&P 500: -0.95% (roughly one-third technology)
- EAFE (International Developed): +0.09% (lower technology exposure)
- Emerging Markets: -1.36% (meaningful technology exposure)
One of the more important concepts in technical analysis is the relationship between confirmations and divergences. Confirmations serve to validate primary market signals, while divergences—or non-confirmations—often provide an early warning that an underlying trend may be losing strength. When a bullish primary signal is not broadly confirmed, technicians become more cautious, recognizing that the advance may be less durable than it appears.
The powerful April-May rally entered June with an abundance of bullish primary signals, but also with an uncomfortable number of divergences. Think of it as the market’s generals charging ahead while the troops hesitate to follow. That lack of broad participation created concerns about the rally’s staying power.
Although June produced only mixed returns across the major indices, many of those divergences quietly disappeared as leadership broadened beneath the surface. From a technical standpoint, the market actually exits June in healthier condition than it entered, despite the uninspiring headline performance.
This week is relatively light on both the economic and corporate earnings calendars. As a result, developments in the Middle East, movements in oil prices, and Treasury yields—which moved higher last week—are likely to be the primary drivers of market direction. Seasonality turns favorable in July, and the unofficial start of second-quarter earnings season arrives next week, providing investors with the next meaningful catalyst.
Be well,
Mike