Category: Newsletter

Despite a weakening unemployment report, a spat between President Trump and Elon Musk, a resurgence in the Ukraine/Russia conflict, and remaining tariff uncertainty between China, Europe, and the U.S., the markets continued their bullish ways this past week. Notably, the market broke out of the ongoing consolidation process that has been in place since May 12th. The good news is that bullish breakouts confirm bullish momentum and suggest markets will trade higher into the next resistance level. That next resistance level is at 6100, the previous topping process before the March and April decline.

Most notably, this past week was the successful test of the 200-DMA. The pullback to that previous broken resistance level and subsequent bounce highly suggests that the April correction is complete and that market control returns to the Bulls. As such, there is very little resistance between current levels and all-time highs. However, as noted last week, with the markets still overbought on a momentum basis, further consolidation will be unsurprising before an advance to new highs occurs. With the MACD sell signal triggered and money flows declining, another test of the 200-DMA next week would be unsurprising.

Several times this past week, we discussed that the market was due for a corrective pullback after reaching more overbought conditions. On Friday, the market gave way early in the morning on fresh comments by President Trump instituting 25% tariffs on Apple (AAPL) on any product not manufactured in the U.S. and 50% tariffs on the EU, as trade talks are not going well. As is always the case, amid a bull run, sellers are still unwilling to sell over fear of "missing out" on rising asset prices. It takes some "event" to bring sellers into the market, which we saw early on Friday.

This past week, the market continued its advance. There is little reason to be bearish with key overhead resistance levels broken. However, as shown, the markets are reaching decently overbought levels after being extremely oversold. This suggests that at least for now, the "easy money" has been made. With the market above the 200, and above the 50 and 20-DMA, pullbacks should be between 5600 and 5800. Investors can use such a pullback to increase portfolio equity exposures and reduce hedges accordingly. Conversely, 5000 to 5200 becomes the next critical target if those lower supports are violated. However, such would require some unexpected event to unfold.

The market paused its advance before the Fed meeting on Wednesday, which was remarkably uneventful. The Fed held rates steady as expected and did not provide much guidance regarding its forecast for future rate cuts. However, on Thursday, the Trump administration discussed its first "trade deal" with the UK. Notably, the US has a trade surplus with the UK, making negotiating a trade deal easier. Nonetheless, announcing a long-awaited agreement gave the market hope that more deals eventually will follow. Unfortunately, other trade deals with actual "trade deficit" countries may be tougher and take much longer to negotiate.

This past week, two reports confirmed the economy is slowing. First, there was the weak GDP report, which showed growth of roughly one percent, after discounting the impact of the trade deficit. Secondly, while the employment number was higher than expected, the job growth trend is also slowing. However, those reports should have tempered market enthusiasm as they reduced hopes for Fed rate cuts. However, the market pushed higher as investors raced to jump back into "risk assets" as the market cleared initial resistance at the 20-DMA and reversed all of the "Liberation Day" losses.

The market rallied above the 20-DMA this past week as investors found some "silver linings" to the ongoing tariff dispute. Despite China saying "no negotiations" had started with the U.S., comments from both President Trump and Scott Bessent suggested that the Administration would "be nice" to China and that a "very good deal" could be done between the two countries. As we have noted previously, given the more extreme oversold condition of the market, any "good news" would allow investors to push stocks higher.

This week, the market was hit following a speech by Fed Chair Jerome Powell, in which he stated that the administration's tariffs could spark "higher inflation and lower growth." If that sounds familiar, it should. In 2021, Powell noted that inflation would be transitory as the money supply exploded by 42%. He was wrong then and is likely wrong again by fixating on hypothetical tariff shocks while ignoring the deflationary "red flags" from falling oil prices, slowing consumption, declining savings rates, and rising delinquencies.

Last week, we noted that the market was not expecting retaliation from China. That battle persisted this week as Trump raised tariffs on China to 104%, and China then retaliated with a further tariff increase of 84%. However, as we said last week, any good news would cause the market to rally sharply. On Wednesday, President Trump announced a 90-pause on the full effect of new tariffs. Interestingly, the same headline sent stocks surging on Monday but was quickly deemed "fake news" by the White House. I suspect that Monday was a "leak" by the White House to test the market response, and President Trump kept that announcement handly to stave off a further decline in the markets. Whatever the reason, the markets needed the break. Here is Trump's full statement: