Stocks Flat Early Aside from Tech as Oil Falls

By Joe Mazzola

Major indexes wobbled early, seeking direction after a long weekend that included tense negotiations between the U.S. and Iran and mixed signals on the Strait of Hormuz, where shipping traffic remains sparse. Today's calendar is devoid of major economic and earnings news, but things ramp up as the week progresses. Thursday brings May Personal Consumption Expenditures (PCE) prices as well as the third estimate of first quarter GDP.

Earnings are light from a calendar perspective but potentially heavy in terms of impact this week thanks to scheduled reports from FedEx (FDX) late Tuesday and Micron (MU) late Wednesday. Chip shares rose this morning, giving the Nasdaq Composite a tailwind. This week includes several large Treasury auctions beginning with one for $69 billion in 2-year notes tomorrow. Results could help determine the path of yields, which remain elevated despite lower oil prices. The 10-year note yield briefly hit 4.5% overnight for the first time since June 12 and is increasingly divorced from oil.

Stocks ended last week on a positive note, paring some of Wednesday's Federal Reserve-driven losses. The S&P 500 Index climbed 0.93% last week, while the Nasdaq ended the week 2.4% higher. Friday's move wasn't a particularly broad rally, however, as just five of the 11 S&P 500 sectors closed higher. More policy-sensitive short-term Treasury yields continued their climb after the hawkish Fed meeting, flattening the yield curve as futures trading built in 70% chances of a rate hike by September, according to the CME FedWatch Tool.

Three things to watch

Is the "June swoon" for real? Sometimes, the market likes its clever phrases. Think "Sell in May and go away." The "June swoon" is another example: June has a reputation for being one of the weaker months historically. But that reputation may be due for a refresh. While June has produced the second-weakest average monthly return in the S&P 500 Index going back to 1957, more recent numbers paint a rosier picture. According to Barchart, since 2010 the index has gained an average of about 0.74% in June, making it the seventh-best calendar month on that basis. What's more, five of the last six Junes (going back to 2020) have ended positively by at least 1%. The outlier was June 2022, when the S&P 500 dropped by 8.4%. So far this year, a modest "swoon" could be in the cards. And with major indexes all trying to push back to new highs, closing the month in positive territory could be a tall order. "I still think this is a market that is being supported by strong earnings per share growth, which is coming from AI," noted Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, or SCFR. "It's imperative that the AI infrastructure buildout theme remains intact."
Could bitcoin be bottoming? After retesting its annual lows around the $59,000 level, bitcoin is trying to inch higher, and its recent low seems, for now, to be holding as support. Crypto was weak in Thursday's trading, likely due to the dollar strengthening on the heels of the Fed meeting. One method to confirm possible bottoms in the price is the mechanism within bitcoin that ensures blocks in the blockchain keep getting mined, said Jim Ferraioli, director of crypto research and strategy at SCFR. Known as bitcoin's mining difficulty adjustment, it adjusts the difficulty of mining blocks in periods of price weakness to make sure block production is, on average, every 10 minutes, Ferraioli said. "During selloffs, mining difficulty is adjusted lower, so the confirmation we look for is the initial adjustment higher," he said. Difficulty is now back near early February levels. Adjustments occur every 2,016 blocks, or roughly two weeks, and the next one is expected later this week. If it shows an increase, it could be a signal that the latest selloff may have run its course.
Farewell, Greenspan: Former Fed Chairman Alan Greenspan's death at age 100 started the week on a sad note. The Fed has become far more transparent since the days when investors tried to read hawkish or dovish signals from the thickness of the bundle of papers Greenspan carried into meetings. Greenspan never held post-meeting press conferences and didn't even publicly announce meeting outcomes until several years into his tenure that began in 1987 That revolutionary change occurred in a short press release on February 4, 1994, in which the Fed announced that it was raising rates as it moved toward "a less accommodative stance in monetary policy in order to sustain and enhance the economic expansion," In a third and final paragraph, the release said Greenspan "decided to announce this action immediately so as to avoid any misunderstanding of the Committees' purposes," given that it was the first policy firming since early 1989. How times have changed.

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