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Stock Market Update

Massive moves are underway across the yield curve despite a weaker than expected consumer inflation report. Last week, the June Consumer Price Index (CPI) showed an increase of 3.5% year-over-year while the monthly change dropped by 0.4%. The annual gain was less than expected while the monthly decline was the largest decrease since April 2020. But as tensions in the Middle East intensify and oil prices rapidly increase, interest rates are jumping across maturities. The 2-year yield that tends to lead fed funds is now at 4.31% and sits well above the Federal Reserve’s target range. Longer-dated yields are rising as well, with the 30-year rate attempting another breakout above the 5% level in the chart below.

That shows the market isn’t buying into a narrative of moderating inflation despite the most recent CPI report, which could pressure equity prices. Stocks are sensitive to rising yields due to the impact on valuations and competition for investor capital. Rising rates on the short-end also points to tightening monetary policy, where market-implied odds are now pricing two rate hikes by year end. That’s placing downward pressure on stock indexes, especially those more exposed to growth like the Nasdaq-100 Index that’s already broken down from a triangle pattern. The S&P 500 is now testing trendline support of its own triangle pattern while also moving below the 50-day moving average in the chart below.

It’s also worth noting that the S&P 500 is now exiting a favorable seasonal period that runs into late July, with history suggesting a volatile period through September. That could especially be the case given midterm elections on the horizon and as uncertainty in the Middle East climbs again. But as I noted in my video update to Hub members, a period of basing action in stocks leveraged to the AI trade (like semiconductors) could setup the next round of breakouts. Keep reading to see:

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***There will be no reports sent over the coming week while on vacation with my family✌️

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Stock Market Update

A tug-of-war is playing out in interest rates as inflation fears jump once again while recent labor market data came in softer than expected. Oil prices are jumping as military strikes between the U.S. and Iran intensify with President Trump declaring the ceasefire is over. Tanker traffic through the Strait of Hormuz was starting to normalize, but could be blocked once again. As we’ve seen since the start of the conflict, escalations and reversals happen often. But the threat of another jump in energy prices is placing upward pressure on long-term interest rates. On the other side, the June payrolls report came in much weaker than expected while prior months were revised lower. A sharp drop in the labor force participation rate was behind a decline in the unemployment rate. While there’s significant noise around rates, I’m keeping a close eye on the 30-year Treasury yield’s ascending triangle pattern below.

A breakout in long-term rates may present obstacles for the rally, but the S&P 500 is nearing completion of a short-term bullish chart pattern. The chart below shows the S&P is starting to breakout from a short-term symmetrical triangle pattern forming since the peak in June. Pullbacks in the pattern have found support at the 50-day moving average (black line), while the MACD is turning higher from a bullish reset at the zero line. The backdrop for a breakout remains bullish. Various measures of investor sentiment point to elevated levels of fear, calendar seasonality is favorable during July, and measures of market breadth are showing that the average stock is leading.

There has been a pullback in leading sectors and industries off the March lows, which could lead to the next round of bullish chart setups. That includes stocks leveraged to the AI infrastructure buildout like semiconductors, where many names are starting new basing patterns. Keep reading to see:

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Stock Market Update

Investors initially cheered a much weaker than expected June payrolls report along with negative revisions to prior months. The economy created just 57,000 jobs during June compared to estimates for 115,000, while May and April’s figures were revised lower by a combined 74,000 jobs. The knee-jerk reaction from investors was to push stock index futures higher, signaling a regime where bad economic news is good for stocks due to the impact on the rate outlook. While odds for a rate hike turned more dovish immediately following the report, eventually the outlook reverted back to a similar scenario before the payrolls report which is an anticipated rate hike at the Fed’s September meeting. Overall, the recent trend in payrolls is inflecting higher based on the three- and six-month moving averages (chart below).

The reality is that the payrolls report reflects a “Goldilocks” figure for the average stock, which isn’t too cold to stoke growth fears and not too hot to pull additional rate hikes forward. While the S&P 500 finished the day flat following the jobs report, there continues to be a massive rotation under the hood. Large-cap value stocks finished the day up 1.20% while large growth was down 1.51%. Excessive momentum in the AI infrastructure trade continues to be unwound while the average stock gets a boost on the broadening economic growth outlook. While the payrolls report is in focus, an updated report on manufacturing activity in June from the ISM survey shows the leading new orders component remaining firmly in expansion territory above the 50 level (chart below).

The key to navigating the rotation is to be proactive taking profits on positions with large gains while seeking out relative strength in new setups. Charts showing sound basing structures in companies with a strong fundamental growth profile remains our primary focus. Keep reading to see:

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Stock Market Update

Investors are contending with an uncertain interest rate outlook following the Federal Reserve’s latest rate-setting meeting. While the meeting carried a hawkish tone over inflation concerns along with a strong economic backdrop, the peace deal between the U.S. and Iran has seen oil prices return to levels before the conflict started. But as a reminder of the recent impact of soaring energy prices, a consumer inflation report jumped to levels not seen in over three years. The PCE price index - the Fed’s preferred inflation gauge - increased by 4.1% in May compared to last year. The core figure that strips out the impact of food and energy prices rose by 3.4% and hasn’t been at the Fed’s 2% inflation target since early 2021 (chart below).

While the inflation picture continues to worsen, the average stock has been gaining ground on the capitalization-weighted indexes recently. That likely reflects evidence of broadening economic activity, which supports the earnings outlook outside of the AI trade. Bullish factors could be lining up to push the rally further into the month ahead. Investor positioning isn’t stretched while various surveys of investor sentiment like the AAII report on retail investors shows bearish views running above the historical average. At the same time, the S&P 500 is about to enter one of the best months of the year for calendar seasonality. While weakness in the back half of June is common, July ranks as the best performing month over the past 20 years (chart below).

Expanding breadth has been a tailwind to trade setups, where we’ve been focusing new exposure to sectors showing relative strength like biotech. Strong earnings from Micron Technology (MU) is helping boost our other tech and AI positions. Keep reading to see:

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Stock Market Update

The first Federal Reserve rate-setting meeting under new chairman Kevin Warsh contained more hawkish surprises than investors expected. Heading into his nomination, Warsh has been under intense pressure from President Trump to lower interest rates. That prospect was always going to be difficult given the Fed sets interest rates by committee, but Warsh came across as being hawkish in his commitment in bringing inflation down to the Fed’s 2% target while removing the easing bias from the Fed’s meeting statement. Across the committee, nine of 18 members providing projections saw at least one rate hike this year which brought forward market-implied probabilities for a rate hike to the September meeting. Following the meeting, the 2-year Treasury yield that tends to lead changes in fed funds jumped to the highest level in over a year and is well above the current fed funds rate (chart below).

While equities initially sold off on the hawkish surprise, major indexes mostly recovered the losses and finished a holiday-shortened week with solid gains on a peace deal between the U.S. and Iran. This time a deal has actual substance with both sides signing an agreement that also reopens the Strait of Hormuz. Stocks are rallying as oil prices pull back, but it’s the recent improvement in breadth that’s most notable. During the rally off the late March lows, participation was narrowly concentrated in tech sector names especially semiconductor stocks. But as recent economic reports point to solid overall activity, the average stock is catching up. You can see that with the cumulative NYSE advance/decline line, which is now breaking out to new record highs following a period of consolidation (chart below).

The broadening rally is starting to drive a new round of breakouts, where we’ve been adding positions to the model portfolio. I’m also monitoring developments and chart action in ETFs covering sectors like biotech and international regions that are setting up constructively. Keep reading to see:

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Stock Market Update

A spike across consumer and producer inflation isn’t offsetting investor hopes for a lasting peace deal out of the Middle East. The Consumer Price Index (CPI) jumped by 4.2% in May compared to last year while the Producer Price Index (PPI) surged higher by 6.5%. Both inflation measures are at the highest level since coming out of the pandemic-driven inflation wave (chart below). While there are hopes that a peace deal (once again) between the U.S. and Iran will help temper the energy-driven rise in inflation, there are signs that price pressures are spreading elsewhere. The supercore measure in the CPI looks at core services excluding shelter, which is a good way to proxy wage-driven inflation from service sectors. It jumped by 3.7% in May and has been inflecting higher in recent months.

While equity markets seemed to shrug off inflation fears and the impact to valuations and monetary policy, better economic data is giving the average stock a reason to rally. While some of the air is being released from the massive rally in AI infrastructure stocks, laggards off the late March lows are turning up recently. You can see that with measures of the average stock. The percent of stocks across the market trading above their 20-day moving average is diverging positively from the S&P 500 in the chart below. The dashed lines show that while the S&P 500 (blue line) is pulling back, the number of stocks in short-term uptrends (black line) is seeing improvement.

Broadening participation likely reflects recent improvement in labor market data and what that means for the earnings picture outside of the AI trade. The market activity and basing reset in many growth stocks could be setting up the next round of major breakouts. Keep reading to see:

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Stock Market Update

A batch of better than expected economic reports is setting up a highly anticipated May payrolls report. Updated surveys on manufacturing and service sector activity from the ISM saw growth accelerate in May compared to April while leading indicators of activity jumped as well. The new orders component of the manufacturing survey was reported at 56.8 while services jumped to 57.3. The surveys are constructed so that a reading above 50 indicates expansion. This week also saw an updated JOLTS report covering the month of April, which showed job openings surging to 7.6 million jobs during the month and is the highest level of openings in nearly two years. The jump in job openings is another confirming indicator on the earnings outlook, where the rate of change closely tracks corporate profits (chart below).

While business surveys and job openings is another tailwind for the earnings outlook, the data is putting more pressure on the Federal Reserve and its policy stance. In the same ISM surveys, measures of prices paid remain near extremely elevated levels which tends to lead inflation. If the payrolls report for the month of May confirms underlying strength in the economy and labor market, the outlook for monetary policy will grow more uncertain given the recent jump in consumer and producer inflation. At the same time, evidence of solid economic activity is helping the average stock catch up to the gains in the S&P 500 and Nasdaq. The chart below plots the NYSE cumulative advance/decline line and is a way to track the average stock. The A/D line has been lagging cap-weighted indexes in breaking out to new highs, but is closing in on new high ground.

More constructive action in the average stock as evidenced by the A/D line is creating more trade setups to add to the watchlist. Current open positions in high growth themes continue to hold above key moving averages, so we’ll keep trailing those holdings. Keep reading to see:

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Stock Market Update

The narrative driving the stock market has hardly changed in recent weeks. Optimism around a potential peace deal between the U.S. and Iran helps to spark a rally in the major indexes. For the most part, there has been very little substance behind the headlines, but that hasn’t stopped the rally in stocks linked to the AI infrastructure buildout. At the same time, challenges to the inflation outlook continue building. The Federal Reserve’s preferred inflation gauge - the Personal Consumption Expenditures (PCE) price index - was released for the month of April. The headline figure jumped by 3.8% compared to last year while the core figure that excludes food and energy prices rose by 3.3%. For investors hoping that the boost in inflation could be temporary from the jump in energy prices, the report contained bad news. The core goods figure that excludes food and energy rose by 2.8% and is one of the biggest increases in decades outside of the pandemic aftermath.

That shows underlying inflation has been a growing issue even before the spike in energy prices, and likely reflects supply chain upheaval from last year’s trade war. The major stock indexes continue grinding higher despite rising inflation and the impact on interest rates across the yield curve and outlook for monetary policy. But market-based inflation expectations are nearing levels that have posed issues for stock prices in the past. The chart below plots the S&P 500 along with the 10-year inflation breakeven rate. A push toward the 2.5% level on inflation breakevens has pressured the S&P 500 over the past few years, and is nearing that level once again.

Since last week, there’s been an improvement in the rally’s participation as short-term breadth turns higher from an oversold level. An increase in bearish investor sentiment has been a tailwind as well. While it’s been difficult finding new setups offering low risk entry points, open positions continue working higher while respecting key moving averages. Keep reading to see:

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Stock Market Update

While major market indexes like the S&P 500 appear to be grinding sideways in recent sessions, large moves are underway elsewhere as recent inflation reports drive volatility in interest rates across the yield curve. The 30-year Treasury yield is holding onto a breakout above the 5% level, which had been resistance for an ascending triangle pattern that’s been forming since late 2023 (chart below). At the same time, market-implied odds continuing pulling forward odds for a rate hike. The chances for a rate hike from the current fed funds range of 3.50-3.75% jumps to over 60% at the Federal Reserve’s December meeting.

Indexes like the S&P 500 and Nasdaq are holding near record highs as concentration in mega-cap stocks linked to the AI infrastructure buildout remain buoyant. But elsewhere in the market, the average stock is reflecting the jump in inflation and impact on interest rates. The NYSE cumulative advance/decline line is pulling back sharply while the percent of stocks trading in short-term uptrends drops as well. The percent of stocks across major exchanges trading above their 20-day moving average fell to 33% recently, which is lowest level since the broader market selloff into late March (chart below).

The average stock has been diverging negatively to the major indexes, which has been limiting breakout trading opportunities. But an oversold breadth condition is already forming, which is also being confirmed by the MACD applied to the stocks trading above their 20-day MA. That could help spark a rally at least in the near-term and see the average stock catch up. Keep reading to see:

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Stock Market Update

Investors are shrugging off a pair of hotter than expected inflation reports and pushing major indexes to fresh record highs. Headline producer and consumer inflation is surging higher, reflecting the jump in energy prices following the war in the Middle East. The Consumer Price Index (CPI) increased by 3.8% in April compared to last year, which is the largest gain in nearly three years. The Producer Price Index (PPI)), which tends to lead changes in the CPI, increased by 6.0% in April and was the largest gain since the end of 2022. The chart below plots the year-over-year change in CPI (green line) and PPI (blue line) for the past 10 years.

The prospect for another inflation wave is lining up with similarities to the surge in price levels into mid-2022. Disrupted supply chains from last year’s trade war, impact of war on energy markets, and stimulus via large federal budget deficits are coming together at the same time. That’s throwing the outlook for interest rates into question, where market-implied odds are now increasingly pricing rate hikes in the year ahead. At the same time, the 2-year Treasury yield that leads the short-term fed funds rate is at the highest level in a year and well above the Fed’s current upper target for fed funds (chart below). The bond market is signaling a pending shift in monetary policy at a time when central bank hawkishness is already on the rise.

The jump in inflation and shifting outlook for monetary policy isn’t slowing the rally. The S&P 500 continues surging higher and is currently up 18% from the late March low. One growing issue is that participation in the trend is lagging more recently, with just 44% of stocks across major exchanges trading above their 20-day moving average. While deteriorating breadth is a condition to monitor, we’ll keep trailing open positions utilizing moving averages and taking gains into strength. Keep reading to see:

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Stock Market Update

Major market indexes continue making new record highs on strong corporate earnings and forward revisions along with optimism that the war in the Middle East is nearing its end. The first quarter earnings surprise for the median stock in the S&P 500 is coming in at 6%, which is the best level in four years. While strong earnings from AI hyperscalers and data center capex fueling semiconductor stocks are a big driver, earnings revisions are broadening out to other capitalization ranges as well. You can see in the chart below that earnings revisions breadth is expanding in small-cap companies along with large-caps in the S&P 500 and Nasdaq 100.

While hope that the war in the Middle East in nearing an end, the impact on energy markets could linger while production is brought back online and the oil product supply chain normalizes. One estimate suggests that it will take two years for oil production to fully recover to pre-war levels. It’s also safe to assume that the geopolitical risk premium added to oil prices will remain much higher in the months ahead. The inflationary impact of high energy prices is altering the outlook for monetary policy at a time when central banks around the world have been slowly shifting to a tightening bias. The chart below plots the percentage of central banks whose last move was a rate cut (blue line) versus a rate hike (red line). Since mid-2025, the portion of banks hiking is slowly moving higher and could quicken given the inflation outlook.

The positive earnings momentum is the main catalyst driving stock prices at the moment. But it will be important to monitor the central bank narrative, and if investors start to perceive inflation as the bigger risk. For now, the market backdrop is constructive for trading breakouts with more chart setups developing. Keep reading to see:

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Stock Market Update

The S&P 500 is hovering just below record highs as massive catalysts get underway. This week features the final Federal Reserve rate-setting meeting that will be chaired by Jerome Powell, who looks set to be replaced by Kevin Warsh following a key procedural vote in the Senate. While the Fed held rates steady as widely expected, the meeting statement saw the most dissenters since 1992 with most against language indicating an easing bias. The central bank is becoming more divided on the appropriate path of monetary policy, and Warsh will take control in the face of rising inflation pressures from commodities. Core measures of inflation that exclude food and energy prices haven’t been below the Fed’s 2% target in over five years. Market implied odds don’t show any movement on the fed funds rate until the end of 2027 (chart below).

If anything, the inflation picture could get worse as gas prices top a national average of $4.00 per gallon while President Trump looks set to extend the U.S. blockade of the Strait of Hormuz in order to extract concessions from Iran on a potential peace deal. The blockade means that tanker traffic through the Strait will remain limited, cutting off 20% of the world’s daily oil product consumption. But the impact extends beyond energy markets, with the Middle East accounting for around 45% of urea production used in nitrogen-based farm fertilizers. Tanker traffic carrying fertilizer has ground to a halt as well (chart below), which could place upward pressure on food prices from higher fertilizer costs as well as the impact on crop yields from fertilizer shortages.

Investors will also have to contend with earnings reports from several AI hyperscalers, where optimism over AI infrastructure spending is playing a key role in positive earnings revisions. There are plenty of catalysts to drive volatility in either direction over the near-term, which is why it’s key to remain disciplined to identify proper chart setups among fundamentally strong companies.

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Stock Market Update

A rally in the S&P 500 that took the index to record territory over the 7,000 level is also one of the strongest 10-day gains in history. The 9.8% rally in the S&P over 10 days to mid-April ranked among the 20 strongest ever. Extremely bearish positioning by institutional funds such as CTA’s and risk-parity strategies likely played a significant role in the gains since the end of March, with one estimate pegging a recent five-day equity purchase at $86 billion for CTAs which would rank as one of the largest buy programs in history. The unwind of bearish positions has run its course, with overall estimates of positioning now running near neutral levels (chart below).

With the S&P 500 and Nasdaq back at record highs, that means valuations remain stretched above historical averages and that earnings growth will be critical to support gains in the indexes going forward. While there is significant uncertainty around the impact to consumer spending and expenses incurred by various businesses from the ongoing war in the Middle East and surging energy prices, forward earnings estimates are doing something peculiar. Earnings revisions for 2026 are now up approximately 4% since the start of the year (green line in the chart below), which compares to the typical revision that drifts lower based on historical data. With the first quarter reporting season about to pick up, it will be crucial to monitor forward earnings estimates for any changes in trend since the start of the year.

Earnings growth will be a necessity to driving the rally further, and is a significant factor in fueling chart breakouts among individual equities as well. That’s why you’ll find most of the chart setups shared below belong to companies in the midst of strong revenue and earnings growth along with positive analyst revisions.

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Stock Market Update

The stock market is having one of its strongest periods in history, with the S&P 500 up 10.7% over the past 11 trading sessions. It ranks as the fifth quickest recovery to record highs following a deep pullback. The S&P closed firmly above the 7,000 level for the first time in history despite the ongoing uncertainty in the Middle East that sparked a 9% drawdown in the index into late March. I’ve argued that bullish conditions for a rally formed after a key group of institutional investors (CTAs and risk-parity) built up extremely bearish positions. What you’re seeing now is a positive feedback loop as improving momentum and falling volatility draws fund flows back into the market.

But there are reasons to be skeptical about the durability and longevity of current rally. One has to do with seasonal trends, where a period of bullish seasonal tailwinds peaks later this month and doesn’t resume until July based on the past 20 years of calendar returns. A drawdown could be more pronounced if the presidential cycle continues tracking in the chart below. You can see that the S&P 500 tends to find its peak about now ahead of mid-term elections, and then recovering during the final quarter of the year.

I would not base any investment decision or outlook based on seasonals alone, which is why I’m also watching confirmation from breadth. I’ve previously noted to Hub members that advance/decline stats coming off the late March low have been lackluster and failed to trigger any meaningful breadth thrust metrics despite the sharp gains. Participation by the average stock is also lagging the indexes on the rebound. The equal-weight S&P 500 remains below its record high and is not confirming the cap-weighted S&P’s new record. The NYSE advance-decline line in the chart below is another way to track the performance of the average stock. It’s also failing to confirm the new high in the S&P.

The breadth divergences noted above are short-term in nature at this point and the average stock could catch up in the days/weeks ahead. But it’s worth noting especially as seasonal tailwinds go away and I’ve noted the absence of high quality setups, which is a big change coming off the lows in April last year. We’re still adding a couple new positions over the past week, but will continue being very selective in our chart setups.

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Stock Market Update

A (fragile) two week ceasefire between the U.S. and Iran delivered the spark that ignited bullish conditions recently building. The combination of oversold breadth, positive divergences, and bearish sentiment and positioning provided the right ingredients to see a massive rally unfold. As I highlighted in Sunday’s Market Mosaic, the presence of positive breadth divergences was only adding to the bullish setup over the near-term. The ceasefire and potential reopening of the Strait of Hormuz helped drive a massive rebound that saw the S&P 500 recover key moving averages (MAs) on a huge opening gap. The chart below shows the S&P gapping above both the 200-day MA (green line) and 50-day MA (black line) in a single trading session.

The situation might feel familiar with the one-year anniversary of the stock market’s recovery from the trade war and subsequent pause on tariffs. While follow through on the rebound remains to be seen, it’s worth noting that breadth statistics on yesterday’s advance fell well short of the thrusts trigged one year ago. The chart below shows the ratio of advancing stocks to declining stocks on the NYSE. That ratio finished the day at 4.4 compared to 37.2 last year that helped trigger several breadth thrust indicators, which typically bodes well for the S&P 500’s forward returns looking ahead on longer time frames.

While the underwhelming A/D performance doesn’t have as positive implications for longer-term returns, the recent cluster of strong A/D ratios could help the S&P 500 follow through on a strong period of seasonality that runs through April. We added several positions to the model portfolio to take advantage of breakouts.

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Stock Market Update

The S&P 500 just posted its worst quarter since 2022, with a drawdown hitting both equity and bond markets to start the year. But a combination of oversold conditions and bearish positioning helped spark a rally that could be boosted by a positive feedback loop. The catalyst for the rally came from comments by President Trump that an end to the war with Iran was within sight, while negotiations with Iran at least appear to be materializing. That was enough to spark a sharp rebound in equities, especially given that a key category of institutional investors had pushed bearish positioning to extremes seen around episodes like last year’s trade war and the depths of the pandemic selloff (chart below). Moderating volatility levels and improving momentum could continue helping draw institutional fund flows back into the market.

With oversold breadth and bearish sentiment reflected in both positioning and survey data, it’s no surprise to see at least a relief rally take hold. It’s also worth remembering that a period of positive seasonality runs through the end of April for the S&P 500. But a longer-term recovery in the stock market will come down to the rate outlook on both the short- and long-end of the yield curve. Based on comments from Federal Reserve Chair Jerome Powell and market-implied odds, the Fed looks set to keep rates on hold for now while the 30-year Treasury yield hovers near the highest level since 2007. Challenges on the inflation outlook still poses a major risk, especially with the prices paid component of the ISM’s most recent manufacturing survey hitting the highest level since June 2022. Back then, the Consumer Price Index surged to an annual increase of 9%. The chart below overlays the prices paid component (blue line) with CPI (red line).

While short covering and positive seasonals could help push the rally further over the near-term, the outlook for rising inflation poses a serious risk to the rate outlook and market valuations. There are still sectors and industries showing relative strength, which is where we want to focus our attention for new trades. Keep reading to see:

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Stock Market Update

Stocks are attempting to bounce back from an extremely oversold condition, but one key hurdle remains in the way. Across the major exchanges, the percent of stocks trading above their 20-day moving average (MA) dropped to just 18% at one point last week. Along with other indicators like the McClellan Oscillator, various breadth metrics pointed to oversold levels while investor sentiment turned increasingly bearish across both survey and positioning indicators. Those are ideal conditions to support a rally, with the S&P 500 rebounding off last week’s lows at the 6500 level. But so far, the index is struggling to recapture the 200-day MA (green line in the chart below) which has served as resistance on several occasions this week.

While breadth, sentiment, and positive seasonality over the coming month are all tailwinds for equities, investors are being forced to contend with a rapidly changing dynamic when it comes to monetary policy. As forces driving inflation show no signs of easing, the outlook for rate cuts is growing uncertain as various market-based indicators are now pointing to the prospect of rate hikes in the year ahead. The 2-year Treasury yield now sits above the upper bound of the fed funds target, and fed fund futures now favors a hike in 2026. At the same time, longer-dated yields are approaching key levels. The chart below shows the 30-year Treasury yield, which is forming an ascending triangle pattern. A breakout would put the 30-year at the highest level in nearly 20 years.

The interest rate backdrop is quickly shifting to a headwind on both the short- and long-end of the yield curve. While that could pressure equity prices, I believe the near-term setup favors bullish action in the indexes. With that in mind, it’s important to keep a close watch on our trade setups that are showing relative strength and nearing key breakouts. Keep reading to see:

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Stock Market Update

A big problem is brewing for the Federal Reserve. The same day that the Fed concluded its latest rate-setting meeting and voted to keep rates steady, the Producer Price Index (PPI) for the month of February gained more than expected. The headline PPI jumped by 3.4% compared to last year while the core figure that excludes food and energy prices increased by 3.9%. PPI inflation will often lead changes in consumer inflation measures, with inflation reports not yet reflecting the breakout of war in the Middle East and ensuing impact on energy prices.

During his post-meeting press conference, Fed chair Jerome Powell acknowledged the economic impact of the war on Iran is uncertain while also reiterating the Fed’s long-term inflation target is 2%. But the Fed’s preferred measure of consumer inflation (the PCE price index) hasn’t been below that level since February 2021 (chart below) while the central bank’s updated economic projections shows the median forecast for PCE inflation rising to 2.7% in 2026 versus 2.4% in the prior estimate. As I’ve outlined frequently, leading indicators of inflation and inflation-sensitive sectors are warning of higher price levels ahead, and that was before the jump in energy prices.

Not surprisingly, the S&P 500 has moved into a regime of strong negative correlation to oil prices. The longer the conflict in the Middle East drags on, the more upside pressure on oil prices and impact on the outlook for monetary policy. Traffic through the Strait of Hormuz remains at a standstill (chart below), which is impacting energy and fertilizer supplies. While stocks could still rally in the near-term from an oversold condition, the longer-term outlook is facing serious challenges from inflation and the interest rate outlook.

For our model portfolio, we continue trimming open positions hitting trailing stops while focusing new exposure on industries showing relative strength, including one one new addition this week. Keep reading to see:

• Open ETF positions.

• Open stock positions.

• Chart analysis for new trade ideas.

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These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup. Live alerts are sent to Traders Hub members only.

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Stock Market Update

Uncertainty over events in the Middle East is causing a spike in volatility across energy markets. Oil surged to nearly $120 per barrel to start the week before falling back to $86 currently on reports of a coordinated release of strategic oil reserves from several countries. The International Energy Agency (IEA) announced that a record 400 million barrels of oil will be released, or about a third of total emergency reserves. While the move may immediately weight on sentiment around oil prices, the reality is that it will take time for the oil to come to market. The impact on oil prices will have a spillover effect to the stock market, where the S&P 500 has become very negatively correlated with oil price movements (chart below).

While the pullback in oil prices following the surge to $120 helped boost stock prices, technical conditions were aligned for a rally as well. As I outlined in the The Market Mosaic, futures tied to the CBOE Volatility Index (VIX) triggered a signal pointing to extreme fear while short-term breadth approached oversold levels. Other positioning data suggests that substantial buying pressure could boost the stock market on durable signs that tensions are easing and energy products could start flowing through the Strait of Hormuz once again. That’s because hedge fund short exposure in macro products is hitting the highest levels since 2022’s bear market (chart below).

With so much headline risk and volatile price action in equities, we’ve remained slow to add new exposure while trailing open positions with moving averages. The best thing to do in this environment is search out relative strength within new basing structures, as those stocks could be the new leaders on the next uptrend phase. Keep reading to see:

• Open ETF positions.

• Open stock positions.

• Chart analysis for new trade ideas.

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These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup. Live alerts are sent to Traders Hub members only.

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Stock Market Update

The fallout from the conflict in the Middle East continues having a cascading impact on various sectors of the capital markets. The U.S. and Israel are continuing their strikes against targets inside Iran, while Iran retaliates with missile and drone attacks impacting various countries in the region. From a disruption standpoint, the production and flow of key energy products is being impacted the most. About 20% of the world’s oil and liquified natural gas transits the Strait of Hormuz off Iran’s southern coast, where fears are growing over an extended closure. The chart below shows that traffic in the strait has essentially ground to a stop. It’s also worth noting that the strait is a major chokepoint for ingredients in farming fertilizers like urea where around 35% of global exports pass through.

The threat to rising energy and food prices means the impact of the conflict could be extremely inflationary if a resolution isn’t reached soon. Evidence of inflationary pressures are building even before the turmoil in the Middle East. This week saw an updated report on manufacturing activity from the ISM, where a reading above 50 indicates expansion. While manufacturing sector activity is expanding with a reading of 52.4 in February, the prices paid component surged to 70.5 which is the highest level since mid-2022 (chart below). Price paid tends to lead changes in consumer inflation, with the most recent jump occurring before the Middle East conflict broke out.

While investor attention and headlines are fixated on developments between the U.S. and Iran, I believe the bigger challenge facing equities is the looming rise in inflation and the pressure that would apply to valuations. Keep reading to see:

• Open ETF positions.

• Open stock positions.

• Chart analysis for new trade ideas.

Read more