Stocks Keep Running as Inflation Fades and Apple Breaks Out

1722

Stocks are hitting new highs as inflation eases and Apple breaks out.

The S&P 500 rose 1.6 percent between Friday, June 7, and Friday, June 14. It was the second consecutive positive week, and the second straight record weekly closing high. The technology-heavy Nasdaq-100 climbed even more, advancing 3.5 percent.

The week started with AAPL describing how AI will be integrated into its operating system. Analysts mostly viewed the news as positive for both the company and the broader technology space:

  • Company level: AI could boost AAPL’s high-margin services business and potentially spur an iPhone upgrade cycle.
  • Industry level: AAPL could mainstream the use of AI, boosting demand for computing power and semiconductors.

The second big story was a trio of benign inflation reports. Consumer prices, producer prices and import prices were all lower than expected. Initial jobless claims also unexpectedly rose to a 10-month high and consumer sentiment unexpectedly fell to an eight-month low. Those headlines helped lower interest-rate worries.

CME’s FedWatch tool showing the estimated interest rate after the September 18 meeting. Notice how the highest probability shifted down by 25 basis points.

Ironically, the Federal Reserve took a hawkish stance by reducing the number of potential rate cuts from three to one. The market seemed to disregard the central bank and slightly increased its expectations for rate cuts, according to CME’s FedWatch tool.

Semiconductors Stand Alone

Semiconductors and technology dominated upside in the S&P 500 last week. TradeStation data showed that only two of the top 20 index members were non-technology stocks: Constellation Energy (CEG) and Home Depot (HD).

Broadcom (AVGO) had a record weekly gain on strong earnings, revenue and guidance. Investors focused on its potential to benefit from AI and demand for its VMware software. The company also split its shares 10-for-1 and became the ninth-most valuable member of the S&P 500.

Related chipmakers like Skyworks Solutions (SWKS) and Qorvo (QRVO) followed AVGO higher.

Broadcom (AVGO), with select patterns and indicators.

Adobe (ADBE) also surged after results beat estimates. Oracle (ORCL), the index’s No. 6 gainer, jumped to a new record high on strong bookings. It also announced record contracts in response to AI demand and signed deals with OpenAI and Alphabet (GOOGL).

Crowdstrike (CRWD) was another noteworthy mover. The cybersecurity company rallied 10 percent on news it will join the S&P 500 on June 24. GoDaddy (GDDY) and KKR (KKR) were also added.

Energy and financials were the worst performers as investors rotated away from cyclical sectors.

Charting the Market

The S&P 500 seems to remain in a tight uptrend with few obviously bearish signs.

Biggest Gainers in the S&P 500 Last Week
Broadcom (AVGO)+23%
Skyworks Solutions (SWKS)+15%
Qorvo (QRVO)+13%
Adobe (ADBE)+13%
Arista Networks (ANET)+11%
Source: TradeStation Data

Some chart watchers may notice that the index is consolidating in tight sideways ranges without discernible dips. That price action, reminiscent of the initial rally in November, may reflect a lack of selling pressure.

Next, Wilder’s Relative Strength Index (RSI) hit an overbought condition for the first time since early March. Similar readings in late 2023 and early 2024 were accompanied by upward movement in stock prices.

Third, the 50-day moving average has risen at a quickening pace since June began. (Highlighted by the MA speed custom indicator on the chart below.) Such accelerations often occur as a move begins. (Examples include last November, April 2023 and November 2020.)

The 10-year Treasury yield also hit its lowest level since late March. That’s potentially important because higher yields in October and April triggered weakness in the stock market.

S&P 500 with select indicators and patterns.

The main negative for stocks now could be relatively limited participation in the rally. Just 36 percent of the S&P 500’s members rose last week and fewer companies made new 52-week highs as the index ascended. That kind of narrowing “breadth” may be considered a potential warning sign for sentiment.

The Week Ahead

This week brings a handful of economic events, speeches by Fed officials and earnings. It’s also interrupted by the Juneteenth holiday on Wednesday.

Fed board governor Lisa Cook speaks today and Lennar (LEN) issues quarterly results after the closing bell.

Biggest Decliners in the S&P 500 Last Week
Paramount Global (PARA)-15%
Aptiv (APTV)-14%
Warner Bros. Discovery (WBD)-12%
Albemarle (ALB)-9.9%
PayPal (PYPL)-9.9%
Source: TradeStation Data

Retail sales are tomorrow morning. Richmond Fed President Thomas Barkin and governor Adriana Kugler also make comments.

Markets are closed Wednesday.

Thursday is the busiest session, with housing starts, building permits, initial jobless claims and crude-oil inventories. Accenture (ACN), Kroger (KR) and Jabil (JBL) report earnings.

Existing home sales are on Friday.

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