The S&P 500 has chopped sideways below its early June high, consistent with typical midterm election year seasonality, while the NASDAQ 100 broke below its consolidation wedge and 50-day moving average. Beneath the surface, the picture is broadening rather than deteriorating. The percentage of S&P 500 stocks in uptrends has climbed from 32 percent at the end of March to 62 percent today, while the NASDAQ 100 has gone the other way, from 66 percent in April to 44 percent.
The equal weight S&P and the NYSE composite are near highs, small cap value is outperforming large cap growth, and international markets (Europe, Japan, Singapore, Latin America) are trading near multi-year highs as the U.S. dollar backs off resistance. With 10-year yields breaking higher out of their range and long bonds sitting on their lows, David makes the case that a rising stream of dividends remains more attractive than a fixed coupon in a second wave of inflation.
James Callahan reviews a blowout bank earnings season: 12 of 13 S&P 500 banks have reported, with revenue growth just over 18 percent and earnings growth of 35 percent, driven by record capital markets activity, easing regulation and a resilient U.S. consumer.
Amit Joshi covers the supply side of energy, where cumulative forfeited Persian Gulf supply reached roughly 1.5 billion barrels by the end of June, U.S. crude inventories sit near 45 days of cover (the lowest in 45 years), and crack spreads are at all-time highs. Positioning reflects the rotation: financials at 25 percent of portfolios, industrials at 16 percent, significant overweights in energy and materials, tech reduced to 8 percent versus 33 percent for the index, and roughly 8 percent cash held against summer seasonality.
Key takeaways
Breadth Is Rotating, Not Deteriorating
S&P 500 stocks in uptrends have risen from 32 percent at the end of March to 62 percent, while the NASDAQ 100 has fallen from 66 percent in April to 44 percent. The parallel drawn is to 2000, when the NYSE performed well for 18 months after tech got difficult.
Bank Earnings Are the Standout of the Season
Twelve of thirteen S&P 500 banks have reported, with revenue growth just over 18 percent and earnings growth of 35 percent, supported by record IPO and debt issuance activity, easing U.S. regulation and a resilient consumer. Financials are now 25 percent of firm portfolios.
The Energy Supply Story Is Bigger Than the Headline Oil Price
Cumulative forfeited Persian Gulf supply reached about 1.5 billion barrels by the end of June, U.S. crude inventories are near 45 days of cover (lowest in 45 years, versus a 65-day norm), and 3-2-1 crack spreads and diesel crack spreads are at all-time highs. Oil has moved from 68 to 84 dollars.
Rising Long-Term Rates Favour Dividend Growers Over Bonds
Ten-year Treasury yields have broken higher out of their consolidation range, TLT sits on its lows, and Bunds have broken down. The premise remains a second wave of inflation, with dividend growth as the offset to a fixed coupon.
Tech Is Technically Weaker Even as Earnings Stay Strong
XLK broke down from its pennant, semis were recently about 160 percent above their long-term moving average (the prior such stretch preceded a 47 percent correction), and the firm is down to one semiconductor position after Lam Research broke its stops. Price reaction to earnings, not the earnings themselves, is the tell being watched, with GE Vernova reporting next.
Positioning Follows the Breadth
Financials 25 percent, industrials 16 percent, significant overweights in energy and materials, tech at 8 percent versus a 33 percent index weight, Canada and international emphasized over the U.S., and roughly 8 percent cash held against midterm year seasonality.