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Stock Market Update

An August payrolls report that smashed expectations is adding additional uncertainty over the Federal Reserve’s next move on interest rates. Nonfarm payrolls added 162,000 jobs last month which was triple the 53,000 expected. The prior two months were also revised higher by a combined 55,000. The report came a day after influential Fed Governor Christopher Waller favored keeping rates steady in September assuming no big surprises in next week’s inflation reports. But evidence of a strong job market coupled with inflation that’s ran above the Fed’s 2% target for over five years will put pressure on the Fed to act. The 2-year Treasury yield that tends to lead changes in the fed funds rate now sits 62 basis points above the current upper fed funds target, implying the bond market expects at least two rate hikes ahead (chart below).

Major stock indexes pulled back slightly after the jobs report, with stocks recently rallying on hopes of the Fed holding rates steady versus pulling back when odds for a hike increase. While the knee-jerk reaction is centered around the rate outlook, it’s worth keeping in mind that good news for the economy should be good news for corporate earnings. The jobs report adds to recent data pointing to an economy expanding at solid pace, which should support the bull market looking ahead. Over the near-term, stocks are just starting the worst month of the year for calendar seasonality while volatility should be no surprise heading into midterm elections. It’s worth noting that we’re seeing a deterioration in breadth, with the cumulative NYSE advance/decline line pulling back in the chart below.

While the average stock is pulling back, it’s interesting to note that the market’s biggest stocks including the Mag 7 could be setting up to take the lead again. I’ll have more on that in our chart breakdown for trade ideas below.

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Stock Market Update

Although new Federal Reserve Chair Kevin Warsh promised to change how the Fed communicates with the capital markets, his first keynote speech at the Jackson Hole Symposium contained few surprises. Warsh sounded hawkish in describing inflation as running above target and reiterated the Fed’s need to focus on price stability, but stopped short of hinting at any policy action at the next rate-setting meeting in September. Comments around price stability mostly echoed statements that Warsh has previously made following Fed meetings. While equities didn’t see much intraday volatility following the address, it’s worth noting that odds for a September rate increase versus holding steady slightly favor a hike compared to odds favoring no change in rates before (chart below).

While declining to provide any sort of forward guidance, Warsh did note that financial conditions could not be described as restrictive. If anything, overall financial conditions are running at extremely loose levels based on a measure released by the Fed’s Chicago district in the chart below where a reading below zero indicates looser than average conditions. Loose conditions point to relatively cheap and plentiful credit, which is associated with positive economic activity and is a tailwind for asset prices. Extremely loose conditions should give the Fed plenty of cover to raise rates at a gradual pace if it chooses to do so. It will be hard to justify keeping rates steady with an economy showing strong activity while the most recent PCE price index came in at 3.7% in July compared to last year. Inflation has remained above the Fed’s 2% target for over five years.

While stocks could be vulnerable to short-term volatility around uncertainty to the rate outlook along with approaching mid-term elections, it’s hard to see a tightening cycle repeating 2022’s pace of rate hikes. Loose financial conditions and evidence of positive economic activity that supports the earnings outlook should keep the bull market moving forward. Keep reading to see:

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Stock Market Update

A report pointing to rising economic activity and easing inflationary pressures coupled with renewed efforts to lower long-term interest rates is boosting sectors sensitive to liquidity. The latest data covering activity in the domestic manufacturing and service sector of the economy show activity expanding at an accelerating pace, with S&P Global’s Flash U.S. PMI coming in at 56.0 compared to 54.5 last month. A reading over 50 indicates expansion, with the monthly gains concentrated in the service sector of the economy. The chart below overlays the U.S. composite PMI with annualized GDP growth, with the PMI hitting the highest level in over four years.

While the PMI report shows output prices remaining above the 50 threshold, recent months have seen a deceleration alongside some moderation in consumer inflation. That hasn’t stopped longer-dated Treasury yields from rising to the highest levels seen in nearly 20 years, so the U.S. Treasury is stepping in to intervene by doubling a buyback program to purchase long-term bonds. While the move is being described as providing liquidity, the real reason is a form of yield curve control where short-term bonds will be issued to fund proceeds for the buyback program. The program size will increase to at least $4 billion, which is a negligible amount relative to the amount of Treasuries outstanding that’s crossing above $40 trillion (chart below). But the intervention shows that officials are watching rates with concern and are willing to take action to stem the rise in yields.

More evidence of a strong economy that supports the earnings outlook and moves to boost liquidity are more tailwinds for the stock market and are delivering a boost to liquidity-sensitive asset classes including gold and Bitcoin. Gold mining stocks are back to showing relative strength, and are setting up new basing patterns.

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Stock Market Update

A pair of reports showing moderating inflation is helping keep the outlook for monetary policy from turning too hawkish. Last week featured the Consumer Price Index (CPI) and Producer Price Index (PPI) for the month of July. The headline CPI figure came in at 3.4% compared to last year while the core figure that excludes food and energy prices increased by 2.5%. The headline PPI jumped 4.7% while the core reading registered 4.2% year-over-year. The readings all around continued moderating from June’s pace but remain well above the Federal Reserve’s stated target of 2% annual inflation. In fact, the core CPI measure hasn’t registered a reading below 2% since early 2021. The chart below shows various core components for the CPI, including the “supercore” made up of core services ex-housing to track labor-intensive industries.

While producer and consumer inflation levels remain above target, the falling rate of change compared to prior months is boosting hopes that interest rate hikes by the Fed will either be delayed or lessen in magnitude. Current market-implied odds favor the Fed holding rates steady at the next meeting in September, followed by one hike before year-end (chart below). Following one quarter point hike, the Fed is projected to hold rates steady through next year. However, it’s worth noting that the current level of the 2-year Treasury yield sits 0.42% higher than the current upper target of the fed funds range, implying a slightly more hawkish take from the bond market.

The current economic and liquidity backdrop should remain supportive for equities. While uncertainty ahead of midterm elections could present volatility, the combination of loose financial conditions (boosted by renewed optimism around the Fed) coupled with rising forward earnings estimates should be bullish tailwinds for stocks. Keep reading to see:

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Stock Market Update

A big miss on nonfarm payrolls is shifting the narrative around the Federal Reserve and outlook for monetary policy. The July jobs report showed that 23,000 jobs were lost during the month (chart below) compared to expectations for a gain of 80,000. At the same time, the prior two months were revised lower 103,000 jobs while the unemployment rate decreased due to a drop in labor force participation. While there could be distortions in the data around seasonal adjustments and impact of World Cup, the poor report is being greeted with enthusiasm by the stock market which is rallying in the immediate aftermath of the data.

That’s because bad news on the economic front is being interpreted as taking the pressure off the Fed to hike interest rates. Market-implied odds now slightly favor the Fed keeping rates steady at the next meeting followed by just one rate hike before holding steady well into next year. One bad jobs report doesn’t mark a trend, but investors need to keep in mind that stock prices follow earnings over the long run. Other data released this week shows both the manufacturing and service sector of the economy holding up just fine, while the leading new orders components remain in expansionary territory. In the ISM’s manufacturing report, the spread between new orders and inventories is widening, which tends to be a good sign for future economic activity (chart below).

The next big catalyst to steer the direction of the Fed will be the CPI inflation report due out next week. The S&P 500 also remains in a volatile stretch of seasonality for the next couple months, with new trade setups continuing to fill out basing patterns. Keep reading to see:

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Stock Market Update

Disagreement and uncertainty over the forward path of monetary policy is rising at the Federal Reserve. While the central bank left policy rates unchanged as widely expected, there were three dissenting votes against the action where officials preferred a rate hike. It was the largest number of dissenting votes early into a new Fed chair’s term since the 1970s and highlights the growing divide within the Fed as consumer inflation pressures mount. Fed Chair Kevin Warsh continued to portray a hawkish view toward inflation, and reaffirmed the Fed’s commitment to a 2% inflation target. Following the meeting, massive moves are underway across key segments of the capital markets. That includes the 30-year bond yield, which is building on another attempt to breakout over the 5% level (chart below).

There’s also an outsized move happening in currency markets. The U.S. Dollar Index is seeing a sharp reversal lower from a double-top pattern after testing resistance near the 102 level in the chart below, and is now losing support at the 50-day moving average (black line). While part of the move is being driven by speculation over intervention by Japanese officials to support the yen, the pullback in the dollar has implications for other market sectors. The broader commodities trade is heating up once again, while developed international equities are nearing a breakout from a multi-month basing pattern (more on that in our trade ideas below).

Other sectors seeing a recent pullback are trying to find traction in the wake of the Fed meeting, including semiconductor stocks. While time will be needed to see new bases evolve with that group, plenty of relative strength is emerging elsewhere. Keep reading to see:

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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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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 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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Keep reading to see:

• Open ETF positions.

• Open stock positions.

• Chart analysis for new trade ideas.

Read more