Stocks Approach August Highs Amid Talk of a New Bull Market

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Talk of a new bull market is buzzing on Wall Street with the Federal Reserve expected to stop raising interest rates.

The S&P 500 rose 0.4 percent between Friday, June 2, and Friday, June 9. It was the fourth straight positive week, the index’s longest winning streak in 10 months. About two-thirds of its members advanced, according to TradeStation data.

Perhaps more importantly, stocks have gained more than 20 percent from their October lows. That informally marks the beginning of a new bull market after last year’s “bear market.”

At least two other big signals could highlight the change in sentiment. The American Association of Individual Investors (AAII) reported that 45 percent of investors expect the market to be higher in six months. The proportion jumped by over 15 percentage points — its biggest increase since November 2020.

Second, Cboe’s volatility index (VIX) slid to a new three-year low. It was the second straight week that the “fear gauge” closed at pre-pandemic levels.

S&P 500, daily chart, with select patterns and indicators.

Here Comes the Fed

Wednesday’s Fed meeting is the next big catalyst. Policymakers have hiked interest rates for 10 straight meetings but this week they’re expected to leave them unchanged. Investors will also watch the forecasts of future rates (“dot plot”) and Chairman Jerome Powell’s press conference for more details.

The key question is whether the central bank is finally done battling inflation. Is a rate cut possible later this year?

The consumer price index (CPI) tomorrow morning could also impact sentiment and interest rates.

The government additionally plans to sell more than $300 billion in Treasury securities this month, replenishing its funds after Congress raised the debt ceiling. While such debt auctions are usually uneventful, some observers have worried its large size will push up rates and draw cash away from equities.

Tesla Keeps Rising

Consumer-discretionary stocks were the strongest sector last week. Tesla (TSLA) led the move after announcing deals to share its charging network with General Motors (GM) and Ford Motor (F). The electric-vehicle giant has also gained on optimism about its next quarterly deliveries report in early July.

Biggest Gainers in the S&P 500 Last Week
Warner Bros. Discovery (WBD)+18%
Tesla (TSLA)+14%
Bath & Body Works (BBWI)+12%
Ford Motor (F)+11%
Norwegian Cruise Line (NCLH)+8.8%
Source: TradeStation Data

Aside from the autos, other discretionaries like Bath & Body Works (BBWI) and Etsy (ETSY) gained last week. There was also broad strength in travel-related names like Norwegian Cruise Line (NCLH), Expedia (EXPE) and Caesars (CZR). Those are mostly consumer stocks, although airlines technically fall under the industrial sector.

Banks and energy outperformed as investors returned to cyclical stocks that could benefit from the Fed halting rate hikes.

Consumer staples and technology were the only sectors to fall last week.

Charting the Market

The S&P 500 is back near its old 52-week high from August. While the price is similar, there could be some differences beneath the surface.

First, TradeStation data shows the index ended Friday 3.6 percent above its 50-day moving average. Last August, it peaked at 8.7 percent above the same MA. That may suggest it’s now less overbought.

Second, the 10-day MA has been rising for 11 sessions. Last August, it was up for 26 straight days. That could mean the current run isn’t as old.

Third, the 50-day MA is above the 100-day MA. The 100-day MA is also above the 200-day MA. Both are the opposite of last summer. (This order can illustrate longer-term direction because uptrends typically see faster MAs above the slower MAs.)

Fourth, the Relative Strength Index (RSI) ended last week at 66 — four points below the threshold for “overbought.” In contrast, last August it hit 73.

Biggest Decliners in the S&P 500 Last Week
EPAM Systems (EPAM)-19%
Campbell (CPB)-11%
Dish Network (DISH)-10%
C.H. Robinson (CHRW)-8.1%
Dollar General (DG)-7.8%
Source: TradeStation Data

The Week Ahead

This week has a few noteworthy events and earnings aside from the Fed meeting.

Oracle (ORCL) reports earnings this afternoon.

CPI inflation is at 8:30 a.m. ET tomorrow.

The producer price index (PPI), a measure of wholesale inflation, is the same time on Wednesday. The Fed issues its policy statement and Dot Plot at 2 p.m. ET, with Powell’s press conference about 30 minutes later. Crude oil inventories are also due. Lennar (LEN) announces results after the closing bell.

Thursday features initial jobless claims and retail sales. Kroger (KR) reports earnings in the premarket, followed by Adobe (ADBE) in the postmarket.

Friday’s main item is consumer sentiment.

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