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“They always say time changes things, but you actually have to change them yourself.” – Andy Warhol

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Futures are mixed this morning, but the Nasdaq is indicated to open higher, and the May read on PPI hasn’t hurt sentiment.  Headline PPI fell 0.3% m/m versus expectations for a decline of 0.1%.  Ex Food and Energy, they increased 0.2% which was right inline with expectations.  On a y/y basis, headline PPI was up just 1.1% compared to forecasts for an increase of 1.5%, and ex Food and Energy, they rose 2.8% versus forecasts for an increase of 2.9%.  PPI certainly isn’t as closely followed by markets as CPI, but these numbers suggest that the headwind of inflation pressures continues to wane.

A year ago today, the S&P 500 was just entering bear market territory following what was a sharp sell-off due to the Fed signaling to investors that not only were rate hikes coming, but they were coming in big bites.  After a Michigan Confidence report showed consumer inflation expectations were rising more than expected, the FOMC went on to hike rates by an unprecedented 75 basis points for four consecutive meetings.

The snapshot from our Trend Analyzer below shows where the major US equity index ETFs stood relative to their trading ranges as of the close on 6/13/22.  Leading the way to the downside, the Nasdaq 100 was down over 30% YTD, but nine indices were down over 20%.  The week leading up to June 13th had been especially painful as every index ETF in the screen was down over 7% in the prior week, and most were at least 10% below their 50-day moving averages (DMA) and trading at ‘extreme’ oversold levels.

What a difference a year makes.  As we head into the June FOMC rate decision this year, the Fed has signaled that after ten straight meetings where they hiked rates, today will be the first time in over a year that the committee leaves rates unchanged.  Instead of inflation expectations surging, this week’s NY Fed Survey of Consumer Expectations showed that one-year inflation expectations are at the lowest level since May 2021, and three-year expectations are actually slightly below their ten-year historical average.

From a market perspective, whereas the S&P 500 was just entering bear market territory at this time last year, it is now just entering bull market territory as the S&P 500 finally closed 20% above its October 12th closing low last Thursday. Contrast the way the snapshot of index ETFs from our Trend Analyzer one year ago looked with the way it looks as of today.  Now, the Nasdaq 100 is leading the way to the upside with a gain of over 30%.  All but three of the index ETFs are up over 2% in the last week, and most of them are trading at least 5% above their 50-DMAs, and every single one of them are trading at ‘extreme’ overbought levels.

Historically, the market’s reaction to short-term ‘extreme’ oversold levels is very different in magnitude to how it responds to short-term ‘extreme’ overbought levels but given the sharp rally of the last couple of weeks, it shouldn’t be a surprise, if the rally we’ve seen experiences at least a pause for the next several days.

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