(Friday market open) The S&P 500® Index (SPX) is on a six-day winning streak following another surge yesterday amid growing investor optimism that interest rates might be close to peaking.

Thursday’s meteoric rally sent major indexes to fresh 14-month highs, and Apple (NASDAQ:) shares approached $3 trillion in market capitalization for the first time since early last year. Microsoft (NASDAQ:) closed in on its all-time high share price near $350 set in late 2021.

In addition, major indexes managed 1% gains yesterday without participation from Tesla (NASDAQ:) and Nvidia (NASDAQ:), both of which ended lower after their recent extended runs. This could be viewed as positive in that the market didn’t rely on those two mega-caps to propel it higher. Healthcare, energy, and retail stocks flexed their muscles Thursday.

At the same time, some analysts point out that volume’s been light on this upswing, possibly signaling a lack of firm conviction among market participants. Also, financial stocks—often seen as important components of any broad-based rally—remain about 20% below last year’s peaks despite a recent rebound. A rising tide may lift all boats, but some appear to still be taking on water.

The markets will be closed on Monday for Juneteenth, so trading could be thin ahead of the long weekend. When volume lightens, prices can rise or drop more quickly, so keep that in mind if you plan to trade and adjust accordingly, perhaps by taking on smaller position sizes than normal.

It’s also “quadruple witching day,” the single Friday each quarter when contracts for stock index futures, stock index options, stock options, and single-stock futures all expire. Big trading firms often have positions expiring on these dates, and the potential for big moves exists. Large baskets of stocks or futures may be unwound, especially around the opening and closing hour—another reason to stay on your toes.

Morning rush

  • The 10-year Treasury note yield (TNX) inched higher to 3.74%.
  • The ($DXY) fell sharply to 102.02, the lowest in a month.
  • The Cboe Volatility Index® () futures were steady at 14.4.
  • WTI Crude Oil (/CL) climbed to $70.99 per barrel.

Energy was the best performing sector on Thursday as futures rose more than 3%, which analysts attributed to signs of improving demand from China. Meanwhile, the euro surged above $1.09—its strongest level against the U.S. dollar in over a month—after the European Central Bank (ECB) hiked its benchmark deposit rate a quarter-point to 3.5%.

Just in

Japan’s turn: As analysts had expected, the Bank of Japan (BoJ) left interest rates unchanged at its meeting today. The BoJ continues to take an “easing” policy, keeping rates negative after every other major central bank spent the last year cranking up borrowing costs. There’s a little inflation now in Japan for the first time in years, and the BoJ appears to be doing its best to keep that small flame burning after decades of fighting deflationary trends. The yen fell against the dollar and euro following the BoJ decision. Keep watching the BoJ because even a hint that it might change its tune could have implications for U.S. yields, as we saw last December when the BoJ tweaked its policy.

Eye on the Fed

Futures trading points to an 74% probability that the Federal Open Market Committee (FOMC) will raise rates 25 basis points at its July meeting, according to the CME FedWatch Tool. The tool also prices in a better than 90% likelihood that the Federal Reserve will stop there for the year, leaving rates between 5.25% and 5.5%. Futures trading also builds in around a 40% probability that rates will end the year at current levels of 5% to 5.25% or lower.

Fed Governor Chris Waller delivered remarks this morning, kicking off a busy schedule of Fed speakers in the coming week. Waller’s speech on “Financial Stability and Macroeconomic Policy” is among the first post-meeting comments from other FOMC policymakers besides Fed Chairman Jerome Powell. Last time out, Waller sounded hawkish, but the text of his remarks today didn’t directly address rates or this week’s pause decision.

Powell’s remarks this week were mainly dovish, especially because he seemed to leave open the possibility of another rate pause in July. The market rebounded during Powell’s press conference Wednesday, breaking long precedence. Powell’s presence at the podium frequently has coincided with selloffs on Wall Street.

What to Watch

The preliminary University of Michigan June Consumer Sentiment report is due out soon after the open. Analysts expect a headline figure of 60.2, according to Briefing.com. The final May sentiment figure of 59.2 was down from April’s 63.5 and barely up from a year earlier. Keep an eye on year-ahead inflation expectations, which slipped to 4.2% in May. The May Consumer Price Index (CPI) showed declining food and energy prices, so it’ll be interesting to see if that played into expectations.

Home brew: Next week puts the focus firmly back on housing with Tuesday morning’s May Housing Starts and Building Permits report and Thursday’s May Existing Home Sales. Starts rose in April but permits—often seen as a forward indicator—fell month-over-month. More ominously, single-family home-building permits declined 21.2% year-over-year.

April’s soft data looked like a head-scratcher considering Lennar’s (LEN) solid earnings report earlier this week, in which the home builder exceeded expectations for both orders and deliveries. Lennar (NYSE:) executives, in the company’s earnings call, suggested home buyers are getting used to mortgage rates that remain near 7%. Demand has accelerated, the company reported, and supply remains short. With that in mind, prepare to see if Tuesday’s May starts and permits report shows any improvement from April’s gloomy picture.

Stocks in the Spotlight

Stay tuned after the close next Tuesday for earnings from FedEx (NYSE:). Shares have flattened after an early-2023 rally and remain well below their 2021 peak. In its previous quarter, FedEx easily beat analysts’ earnings expectations and raised full-year guidance. The company appears to be benefiting from cost-cutting and restructuring efforts, Barron’s recently reported.

Darden Restaurants (NYSE:), KB Home (NYSE:), and CarMax (NYSE:) are other companies to keep on your radar, as they’re expected to report next week. Adobe (NASDAQ:) shares rose nearly 5% in premarket trading after the provider of content development and marketing software tools beat Wall Street’s earnings estimates and raised its guidance. Like many info tech companies, Adobe stressed its Artificial Intelligence (AI) capabilities.

All you can eat: Talk about choosing the right day for your initial public offering (IPO). Shares of fast-casual Mediterranean restaurant chain Cava (CAVA) doubled on their first day of trading Thursday, helped perhaps by pent-up demand for fresh stocks to trade but also conceivably getting a boost from overall Wall Street gains. Other companies on the sidelines considering IPOs might be inspired by this one.

Word from Washington: What should investors know after the debt ceiling resolution, and what government disruptors remain on tap that could affect portfolios as the year moves along? Check out the latest episode of the WashingtonWise podcast.

IXM Daily Chart

CHART OF THE DAY: SHIPS IN THE NIGHT. High-flying info tech stocks (IXT–purple line) have left financial stocks (IXM—candlesticks) in the dust so far this year. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

“You’re it!” One sector’s cloud can be another’s sunshine. Earlier this week, for example, medical device and surgical stocks like Stryker (NYSE:) and Intuitive Surgical (NASDAQ:) rallied even as shares of UnitedHealth Group (NYSE:) cratered. The spark setting this off was UnitedHealth predicting higher costs from rising procedure volumes after delays caused by the pandemic. Bad news for an insurance company was bullish for companies supplying the tools and devices used in surgery. This kind of push-pull affects other industries, too. Falling rates in the late 2010’s hurt financial stocks but proved a tailwind for utilities, which benefited from competitive dividends. Current weakness in the energy sector amid low crude prices appears to be lifting shares of transport companies, which can grow their margins when fuel costs are lower. Another that’s playing out appears to be funds moving away from big-tech and into small-caps after a major imbalance earlier this year. For long-term investors, these dynamics may not be so important, and simply highlight the need for a balanced portfolio. But active traders often shift funds between sectors and carefully watch such trends.

Battle chip: It’s no secret that semiconductor stocks have partied most of the year despite U.S. sanctions against China related to chip technology. Secretary of State Anthony Blinken’s planned trip to China announced yesterday doesn’t necessarily mean the two countries have a near-term solution on chips, but a thaw in the overall relationship arguably makes progress more likely. As one diplomat told The Washington Post, “There is no substitute for in-person meetings.” Economic items will be on the agenda when Blinken meets China’s foreign minister this week, the newspaper reported, but it didn’t specify which ones.

Foreign affairs: Chips aren’t the only industry under a microscope in terms of relations with other countries. The energy sector’s focus could zero in on Iran in coming days after The New York Times reported indirect talks between the United States and its longtime adversary. The diplomacy is aimed at averting a nuclear crisis, the newspaper said, and an agreement would aim to put a lid on Iran’s uranium production and require Iran to release U.S. prisoners. In return for those and other concessions, the United States would stop seizing tanker ships carrying Iranian oil and unfreeze some Iranian funds. It’s unclear whether other oil-related aspects are under discussion. Iran has close to 4 million barrels a day of oil production capacity, but sanctions keep it from producing or exporting anywhere near that amount. Iran could probably boost world oil supplies by roughly 1% a day if it were able to export more freely. Crude slipped below $70 per barrel last week after rumors of an oil deal surfaced, but those rumors were quickly quashed. Stay tuned for possible developments in the week ahead.


June 19: Markets closed for Juneteenth, a U.S. federal holiday.

June 20: May Housing Starts and Building Permits and expected earnings from FedEx (FDX).

June 21: No major data or earnings expected.

June 22: May Existing Home Sales and May Leading Indicators and expected earnings from Darden Restaurants (DRI).

June 23: Expected earnings from CarMax (KMX)

Happy trading,

Disclosure: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

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