Weekly Stock Market Update & SPY Technical Analysis

If you look at the “usual” names, you’d think that the bull market has lost its touch. Yesterday’s hottest stocks are no longer charging higher, leaving many to wonder if the market rally is coming to an end.

This couldn’t be further from the truth…in fact, this market rally is improving, in a way that investors have been awaiting for a very long time. Over the past decade, particularly the last six years, several technology companies grew larger than life…reaching trillions in market cap and leading indices like the S&P 500 and Nasdaq 100 higher. While this was a rally worth enjoying, it simply was not sustainable. 

Market Breadth

“Market breadth,” which refers to how many stocks are participating in a rally, had been one of the biggest concerns on Wall Street. For a long time, the market was being carried by a narrow group of mega-cap technology stocks. That means the index could move higher while many stocks underneath the surface were flat, weak, or still stuck in downtrends. But that’s beginning to change…

We’re now seeing more participation from areas outside of mega-cap tech, and one of the clearest signs is the strength in small caps. ETFs like $IWM, which tracks the Russell 2000, and $AVUV, which focuses on U.S. small-cap value stocks, have been leading ahead of the S&P 500 in recent weeks (Note that we’ve covered both these ETFs and taken positions in them a while ago in anticipation of this). That matters because small caps have been left behind for years. They were pressured by higher rates, tighter lending conditions, inflation, and fears of an economic slowdown. So when small caps begin to outperform, it can be a signal that investors are becoming more comfortable taking risk outside of the obvious mega-cap winners.

The indices are a great way to play the capital rotation, but savvy investors are diving deep into the small and mid-cap world to find “hidden gems.” We’re doing this constantly in our weekly watchlists. 

Weekly Watchlist

Last Weeks Economic Developments 

There were several key economic reports last week that gave us insight on the health of the U.S. economy. The two we’d like to highlight are:

• Q1 GDP: The U.S. economy grew at a pace of 2.1% in Q1, ahead of the 1.7% estimates.
  
• PCE Price Index: Inflation grew at a YoY pace of 4.1%, in-line with forecasts, but higher than last month’s reading of 3.8%.

The mix of these two reports is important because it reflects a growing economy, but one that’s pushing inflation higher. This threatens the chance of an interest rate cut, which particularly hurts growth stocks…hence why we saw many growth stocks suffer last week following the report (while rate-resilient stocks remained higher).

One nuance we’d like to point out is that most of the recent inflation has been fueled by higher energy / gas prices. This could be part of the reason markets haven’t reacted too severely to the rate hike possibilities. Investors could be pricing in a “best case scenario,” where the U.S.-Iran feud dwindles before end of year and energy prices come down, therefore increasing chances of a rate cut again. 

Economic Calendar this Week

There are several economic reports scheduled this week, but the overall theme of data is going be on the U.S. labor market. The U.S. unemployment rate has remained resilient, despite all the challenges in the economy and layoffs blamed on “AI.” At 4.3%, unemployment is still near record lows, acting as a testament to the strength of the U.S. economy. 

We’ll be updating key economic updates and earnings data throughout the week in our daily morning analysis. 

Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.

Hyper Stocks and its contributors may hold positions in some of the securities or assets mentioned above. These positions are subject to change without notice. Any opinions expressed reflect current views at the time of writing and are not guarantees of future performance. Past performance does not guarantee future results.