Market Insights

Stocks rebounded sharply to end June as cooling inflation and strong economic data spurred hopes of a new bull market.

The S&P 500 rose 2.3 percent between Friday, June 23, and Friday, June 30. It was the sixth positive week in the last seven. The index also had its biggest monthly gain (6.5 percent) since October and completed its third straight winning quarter.

The Commerce Department increased its estimate of first-quarter gross domestic product from 1.4 percent to 2 percent. The unusually large revision reduced fears of a recession — especially with jobless claims falling much more than expected. The Personal Consumption Expenditure price index also matched estimates.

The Bureau of Labor Statistics separately reported that real wages (after inflation) increased in May for the first time in two years. Could the worst inflationary crisis in four decades be easing? Has the Fed engineered a “soft landing” like 1994-1995?

Sixty-one percent of investors believe a new bull market has begun, according to a survey by CNBC. That compares to the 70 percent bearish rating at the end of March. Respondents were also much less worried about a recession.

Energy and Transports Surge

Cyclical groups that could benefit from the U.S. avoiding a recession were the biggest gainers last week. Energy stocks like TechnipFMC (FTI) and Halliburton (HAL) rallied. Both are servicers that could grow from increased drilling. Transports, another key cyclical group, saw broad gains in airlines, truckers, railroad suppliers and delivery companies.

Materials and industrials followed. Those included paint makers like Sherwin Williams (SHW), steelmakers like Nucor (NUE) and packaging stocks like Westrock (WRK). United Rentals (URI) and industrial supplier WW Grainger (GWW) were some of the big industrial gainers.

Interestingly, real-estate investment trusts were the single biggest best performing sector with a gain of 5.1 percent last week. Utilities, health care and consumer staples — typically viewed as safe havens — rose the least.

Charting the S&P 500

The S&P 500 started last week by dropping to within 3 points of its August 2022 high. The index quickly bounced and ended at 4450, its highest closing price in 15 months. That price action, with a lower low and higher high, is known as a bullish outside week. Some chart watchers may consider it evidence that buyers outnumber sellers.

Next, TradeStation data shows 76 members of the S&P 500 hit new 52-week highs. It was the most since November 2021. Does it signal widening participation to the upside?

The Week Ahead

This week includes a few big events, with markets closed for Independence Day tomorrow. No major earnings are scheduled.

Today’s main item is the Institute for Supply Management’s manufacturing index.

A two-day meeting of OPEC follows on Wednesday and Thursday, which could potentially impact energy prices.

Wednesday also brings minutes from the last Federal Reserve meeting.

Thursday has several items: ADP’s private-sector payrolls report, jobless claims, ISM’s service-sector data and crude oil inventories.

The monthly employment report on Friday morning will probably be the most important headline because it could shape views of the economy and inflation before the July 26 Fed meeting.