The Market Melt-Up Can Continue Despite Being Overbought
We are mindful of low trading volumes this week and potential data headwinds.
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Early indications are the market will close the final day of the quarter by building further on recent gains, pushing the S&P 500 and Nasdaq Composite deeper into overbought territory. However, the McClellan Oscillator has yet to become overbought, suggesting the market has some additional room to run.
Giving fuel for that to happen today, Canadian Prime Minister Mark Carney said late Sunday that trade talks with the U.S. have resumed after Canada rescinded its plan to tax U.S. technology companies. Per Carney, those negotiations should track the July 21 timeline set out during the G7 Leaders’ Summit earlier this month.
That suggests Canada isn’t likely to be among the 10 forthcoming deals voiced by U.S. Commerce Secretary Howard Lutnick ahead of the July 9 deadline. Given the intricacies of trade between the US and China, the odds that China is on that list are also low, in our view. Should the market continue to melt up ahead of those trade deals, there is a growing potential for it to be disappointed, especially if those deals are with smaller trade partners.
Before we get to those expected trade deals, we will first have to parse this week’s rash of economic data. That is usually a flurry of activity, but in a compressed trading week, it will be even more so. And because of the market’s early closing on Thursday and Friday's Independence Day holiday, trading volumes this week could be lighter than usual.
Today’s quiet economic calendar gives way tomorrow to twin looks at June Manufacturing PMI data, as well as the May Construction spending report. The PMI reports will likely show inflation remaining elevated in June, but if the Price component in ISM’s data ticks higher than May’s 69.4 reading, that could give traders a reason to lock in some gains. The same goes with Thursday’s June Service PMI reports, and in those, we’ll be seeing how the Price data compare to May’s 68.7 figure.
Wednesday and Thursday bring back-to-back takes on June job creation, first from ADP and then from the Labor Department. ADP’s data is expected to show a sharp rebound to 85,000 jobs being added in June, up from the very disappointing 35,000 figure in May. The June Employment Report is expected to edge lower to 110,000 jobs from 139,000 in May, a level that isn’t going to spur the Fed into action, especially if this week’s inflation data show higher prices due to tariffs.
As if that isn’t enough, we’ll also continue to follow Trump’s fiscal stimulus bill as it moves through the Senate. Based on the legislation that eventually passes, we’ll make any adjustments to the Pro Portfolio deemed necessary.
Coming up today, we’re going to revisit a few price targets and panic points for the pro Portfolio, and we may even have a rating change or two. We also have our June Monthly Roundup coming your way after today's market close, which means our next set of Office Hours will be on Monday, July 7.
