June 15, 2024

Stocks had an active and unusually divergent week, with investors digesting a slew of cooler-than-expected inflation reports, Wednesday’s slightly hawkish Fed announcements, and a sharp drop in Treasury yields. Looking only at the tech sector, the Nasdaq, and the S&P 500, one would think that bulls dominated the market throughout the week, but cyclical stocks, the Dow, and small-caps struggled to keep up with the leaders of the bull market, as growth fears weighed heavily on investor sentiment. Apple (AAPL) finally announced its highly-anticipated artificial intelligence (AI) framework, dubbed “Apple Intelligence,” which led to a memorable rally in the tech giant’s shares while also lifting the entire tech sector, but the broad-based push to new record highs that investors have been waiting for since the end of March has not yet begun.

Inflation dominated this week’s economic headlines, as consumer and producer prices missed expectations across the board, but we also got a mixed bag of sentiment and job market indicators, and the Fed admitted in its monetary statement that the outlook for the domestic economy is highly uncertain. The number of new jobless claims hit a ten-month high following last week’s mixed job market indicators, while the Michigan consumer sentiment number dropped unexpectedly to its lowest level since January. With that in mind, this week’s deep selloff was no surprise, despite the slight hawkish surprise from the Fed and the “sticky” inflation expectations, which could prevent the Central Bank from starting its easing cycle in the coming months.

The technical picture deteriorated this week following last week’s bullish trends, even as the Nasdaq and the S&P 500 hit new record highs, as most stocks failed to join the tech sector's push higher. The Nasdaq and the S&P 500 held up above their 50-day moving averages, and even though the Dow dropped below its short-term indicator, the benchmarks are all trading above their 200-day moving averages. Small-caps had another volatile week, with the Russell 2000 experiencing wild swings near its 50-day moving average, and the benchmark closed the week below its key indicator, close to its recent over-one-month low. The Volatility Index (VIX) dropped to a three-week low, and, despite a post-Fed bounce, the "fear gauge" still closed the week near 12.5, well below both its moving averages.

Market internals improved before Wednesday’s Fed announcements, but the key breadth measures all suffered hits in the second half of the week, as cyclical issues and small-caps weighed on the indicators. The Advance-Decline dropped to its lowest level in three weeks, giving back this month’s bounce, as decliners outnumbered advancing issues by a 2-to-1 ratio on the NYSE and a 4-to-3 ratio on the Nasdaq. The average number of new 52-week highs fell on both exchanges, dropping to 40 on the NYSE and 45 on the Nasdaq. The number of new lows ticked higher in the meantime, rising to 61 on the NYSE and 113 on the Nasdaq. The percentage of stocks above their 200-day moving average dropped sharply toward the end of the week, but despite falling well below 65%, the measure remained above the key 60% level.

Short interest was virtually unchanged this week, despite the Fed meeting and the key inflation reports, but the most-shorted issues showed notable weakness compared to the large-cap benchmarks. Enovix (ENVX) hit its highest level since December this week, continuing its post-earnings rally, and the stock’s short interest of 31% makes even a short squeeze possible in the coming weeks. Iron Mountain (IRM) extended its technical breakout this week, hitting new record highs once again, a very high days-to-cover (DTC) ratio of 10, the move could turn into a sustained rally.  Tractor Supply (TSCO) also had a strong week, edging closer to its recent all-time high, and the stock’s DTC ratio of 7 suggests that it could soon resume its march to new highs.

Despite Wednesday's holiday, we are in for another busy week of economic releases, with key indicators coming out from the retail, manufacturing, and housing sectors. The Empire State Manufacturing Index will be out on Monday, retail sales, and industrial production will highlight Tuesday’s session. The NAHB Housing Market Index will be released on Wednesday. Building permits, housing starts, and the Philly Fed Index will all come out on Thursday, while existing home sales, the CB Leading Index, and the manufacturing and services PMIs are scheduled for Friday. All eyes will be on the key cyclical sectors and the Dow from a technical perspective, as investors hope that buyers will return following the past few weeks’ exodus from growth-sensitive issues. Stay tuned!

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