Sign Up for One-on-One Coaching and get our Premium Membership FREE for 1 Year!
CLICK HERE TO APPLY
Wall Street opened the week cautiously after another resilient stretch left the major averages near record highs. Last week’s strength was driven less by any single dramatic event and more by inflation relief, continued AI and technology leadership, and expectations that the Federal Reserve may be nearing the end of its tightening cycle. Volatility remained tied primarily to oil and geopolitical developments, along with the market’s constantly evolving expectations for interest rates.
That backdrop remains largely intact, but the crosscurrents are growing. Cooling inflation and reduced expectations for another Fed hike are supportive for equities, while rising oil prices, elevated Treasury yields and signs of softer consumer spending are creating new challenges.
Last week’s data strengthened the case that inflation is gradually moving in the right direction. Consumer inflation moderated to 3.4% year over year, while producer inflation also slowed. At the same time, July retail sales fell 0.6%, and recent labor-market data has shown signs of cooling.
That combination has reduced expectations for additional Fed tightening. Markets now see only about a 30% probability of another rate hike in September, with many economists expecting the Fed to remain on hold through year-end. The ideal scenario for stocks remains a gradual economic slowdown that brings inflation under control without pushing the economy into recession.
The biggest risk, however, continues to be that interest rates remain higher for longer. The 10-year Treasury yield has been extremely volatile and continues to trade within the broad 4.0%–4.8% range we have been watching. Monday’s move toward 4.73% once again puts yields near the upper end of that range, while the 30-year Treasury climbed above 5.3%.
Higher yields do not automatically end a bull market, particularly while earnings remain strong, but a sustained breakout above that range would increase pressure on valuations and could become a meaningful headwind for equities.
Energy markets are adding to that uncertainty. Brent crude moved back above $90 per barrel Monday as concerns surrounding U.S.-Iran diplomacy and the Strait of Hormuz returned to focus.
Oil remains one of the market’s most important swing factors because higher energy prices can quickly filter back into inflation expectations. If crude remains elevated, the Fed could have less flexibility to ease policy even as economic growth slows. That relationship between oil, inflation and Treasury yields remains one of the key risks to watch over the coming weeks.
Technology, meanwhile, continues to provide important support. Semiconductor shares have remained resilient following July’s selloff, although Monday showed greater divergence between stronger chip stocks and weaker software names. The AI trade remains an important driver of the broader market, but investors are becoming increasingly selective as valuations rise.
This week’s biggest fundamental test comes from the American consumer. Following last week’s disappointing retail-sales report, Home Depot reports Tuesday, Lowe’s, Target and TJX report Wednesday, and Walmart reports Thursday.
These results should provide an important read on spending, pricing, margins and whether consumers are beginning to pull back. Strong results would support the soft-landing argument, while weaker guidance across several retailers could reinforce concerns that higher prices and a cooling labor market are beginning to affect household spending.
The economic calendar is also busy. Housing starts, building permits and industrial production arrive Tuesday, followed by Fed minutes Wednesday, weekly jobless claims and the Philadelphia Fed survey Thursday, and preliminary manufacturing and services PMI data Friday.
I remain in the MARKET BULLISH camp. Last week’s resilience near record highs, improving inflation trends, strong corporate earnings and continued AI leadership all support the broader bullish case. Most importantly, the long-term trend remains intact.
I continue to believe the SPY rally can reach the $760–$780 area, with $700–$720 representing important support over the next few months. With SPY already approaching the upper end of that target zone, however, the next leg higher will increasingly depend on earnings and economic fundamentals rather than simply expanding valuations.
The primary risk remains interest rates staying higher for longer. As long as the 10-year Treasury remains contained within its broader range, inflation continues cooling and the economy avoids a meaningful slowdown, I believe the bulls remain in control.
For now, the trend is still our friend—but with oil elevated, Treasury yields near the upper end of their range and the consumer facing an important earnings test, this is not the time for complacency.
Please share this Tradespoon Market Commentary with your friends.
Comments Off on
Tradespoon Tools make finding winning trades in minute as easy as 1-2-3.
Our simple 3 step approach has resulted in an average return of almost 20% per trade!