The S&P 500 finished flat Monday as traders failed to build on gains from the previous session, notes Jon Markman of Pivotal Point.
Oddly, cyclical issues were mostly lower during the session as beaten-down technology stocks continued to recover and advance.
The consensus opinion has become the sectors are opposing. It’s more yin and yang in reality. They are interconnected. Although the tech-heavy Nasdaq soundly outperformed the benchmark S&P 500 on Monday, I expect the next big move is up for both indexes.
That process could either begin Tuesday or later in the week, potentially after a sharp downward spike that scares out weak hands.
A rally beyond the 4,232 sets up a melt-up type advance toward the next resistance point at 4,400. Support is 4,185.
On Monday the Dow fell 0.4% to 34,630.24, while the Nasdaq Composite rose 0.5% to 13,881.72. Materials stocks were weak while real-estate equities fared best among stock sectors.
Our new VanEck Wide Moat ETF (MOAT), which focuses on the highest quality stocks, rose 0.78% to a new high, which is awesome because it shows mature, experienced institutional investors are not just in a hunt for raw beta. This is the opposite of “meme” trading, which always ends in tears and is not new as it was done in the 1910s and 1920s.
The Consumer Price Index for May, due Thursday, is expected show prices up 4.7% year over year, the biggest annual increase since September 2008, according to data compiled by Trading Economics. A high rate could pressure stocks, especially in high-growth sectors such as technology and materials.
"Inflation has mixed implications for earnings but is generally positive," Goldman Sachs said in a research note. "Inflation can become a headwind to valuations if it leads to expectations of Fed tightening and higher real interest rates."
Treasury Secretary Janet Yellen clarified comments interpreted by some market participants as suggesting a rate increase to combat rising inflation, a report from Stifel said. "It's not something I'm predicting or recommending," Yellen was quoted as saying later.
Yellen had said she didn't anticipate a bout of persistently higher inflation as a result of the increase in government spending, adding that if one occurred the Fed has the tools to deal with it.
The G7 group of countries agreed Saturday to back a global minimum corporate tax of at least 15% to discourage multinational companies from seeking out tax havens to avoid taxes at home.
In company news, the Aduhem treatment for Alzheimer's disease from Biogen (BIIB) and Eisai won accelerated approval from the US Food and Drug Administration. Shares of Biogen rose 38%, the most in the S&P 500. Shares of Eli Lilly (LLY), which is developing its own drug to treat Alzheimer's, rose 10%.
Moderna (MRNA) shares advanced 7% after the company applied for authorization in the European Union and Canada to extend emergency authorizations of its COVID-19 vaccine to adolescents ages 12 to 15. Moderna also said it has partnered with Medison Pharma to bring its vaccine to market in Central Eastern Europe and Israel.
Learn more about Jon Markman at Pivotal Point.