Control Panel: Stock market rally widening

Investment Analysis Clubs Macro Economic Trends and Risks
1

https://www.wsj.com/finance/stocks/sp-500-rally-sectors-efe6ba9b?mod=hp_lead_pos2

The Stock-Market Rally Is Moving Beyond Big Tech and Investors Are Thrilled

One measure of market breadth recently touched a new high, as financial and industrial names fuel stocks’ climb

By Hannah Erin Lang and Roshan Fernandez, The Wall Street Journal, June 28, 2025

…
While the so-called Magnificent Seven tech stocks still hold investors’ attention—and sway over the market—a broader participation in the recovery has helped propel the Nasdaq Composite and the S&P 500 to all-time-highs in June…

Wall Street generally views improving breadth as a signal of a healthy stock market and a sustained advance. Whether the trend continues will depend on a few uncertainties still looming in the second half of the year: potential conflict in the Middle East, the path of interest-rate cuts from the Federal Reserve and the final outcome of President Trump’s tariff plans… [end quote]

All METARs are aware by now that the S&P500 has reached a new record high. The linked WSJ article says that the stock market rally is widening beyond the Magnificent 7 but the chart shows that rally in the equally-weighted S&P 500 is not outpacing the rally in the cap-weighted S&P500.

Despite the many recent adverse events the stock market is rallying and VIX is down. The percent of stocks in the SP100 over their 200-day moving average is 67% and this is in a positive trend.

The Fear & Greed Index is in Greed. The trade is risk-on since junk bonds are rising along with stocks. The price of the 10-year U.S. Treasury is rising (yield is falling) in parallel with SPX but SPX rising faster.

The USD is still within its broad rising trend of the past 10 years but it began to drop in January 2025. Gold fell in the past week but that’s noise. Oil prices popped after the attack on Iran but immediately fell back.

The Treasury yield curve is positively sloped beginning at 2 years and fell slightly last week. The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, showed loose financial conditions.

Real estate prices continue to rise. The Case-Shiller U.S. National Home Price Index is at an all-time high, double the level in 2006 just before the real estate bubble popped.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 was 2.9 percent on June 27. This is a strong economic reading.

When the price of all assets are rising together (stocks, bonds, real estate) not to mention speculative investments like meme coins and SPACs it’s a sign that too much money is burning a hole in investors’ pockets. M2 is at near a record high and still growing.

Initial unemployment claims are in a very gradually increasing trend but still low. Ditto U-6 unemployment which includes the broadest measure of unemployment ( Total Unemployed, Plus All Persons Marginally Attached to the Labor Force, Plus Total Employed Part Time for Economic Reasons, as a Percent of the Civilian Labor Force Plus All Persons Marginally Attached to the Labor Force).

YOY inflation is above the Fed’s target. The options market expects a 0.25% fed funds rate cut in September but there’s nothing in the data that would indicate this is needed.

The impact of the Trump tariffs is still in the future. It’s almost July. The orders for the Christmas season will be placed soon for shipment over the next few months. That’s when inflation due to tariffs will begin to bite.

I think it’s truly amazing that the markets have absorbed so many shocks recently and bounced back. Will the bubbles continue to inflate? Only time will tell.

The METAR for next week is sunny.
Wendy

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

18 Likes
2

YTD Nasdaq and the S&P 500 are nose to nose which is an oddity.

image
image1460×1042 142 KB

The Captain

2 Likes
3

ah…the big beautiful bill…

4

Gold decline is due to dollar stabilizing. If your medium term expectation calls for dollar to decline then gold will continue to rally.

Real rates are high.. Powell by his own admission this is “restrictive regime”, unemployment is creeping up… except for “fear of inflation from tariff’s” there are not many reasons for the Fed to keep rates this high. Separately, Fed may cut the rates and still long term rates may stay high…

5

Jim (Mungofitch) uses the concept of the “North Atlantic” currency to compensate for his not being US currency fixed. Using that concept along with evaluating the US Dollar Index, let’s ignore the numerical rise in the stock market in terms of USD and reevaluate its trend in terms of relative to a “global wealth index”. The US Dollar Index started 2025 at about 110 and is currently at 97 - meaning that, evaluated in terms of USD the value of our assets has evaporated to the tune of 12% in six months.

While the equity market is largely a psychological beast, what is the literal change in the market’s trajectory taking the loss of the participants’ wealth into account? Using those metrics, the S&P is far from its high in terms off the global purchasing of its assets.

(And does that impact the 99-day rule)?

Jeff

11 Likes
6

Sounds like we might need an alternative to the S&P.

For a USian purchasing a typical basket of goods and services, which equity index(es) should they invest in to receive better purchasing power?

What are the returns, adjusted for global purchasing power, of these alternatives?

3 Likes
7

Jim’s 99 day rule did not take into account currency fluctuations. The scenario we have just passed through is unlike any in recent history.

While the statement above regarding same region costs and same region currency makes the dollar fall not relevant for most people, I would argue this is not the case.

Foreign currency deflation compared to the dollar makes each of the following more expensive:

Travel outside the US
Working outside the US when being paid in US Dollars
Consumer finished goods
Raw and semi finished goods
US capital investment requiring major capital equipment purchases

However, it also makes:

all foreign earnings from US traded companies increase at the one time rerate
all us investments less attractive (treasuries, bonds, equities, real estate, etc.)
US labor cheaper when ex-pats work elsewhere

8 Likes
8

The stock market is affected by the economy, but not linked to it. Most Americans have never used foreign currency and see no reason to be concerned. On the other hand, we use imported goods and services, now with the cost of a tariff tax (essentially a sales tax collected by the US government, similar in concept to Europe’s VAT) added on top. As the US dollar drops, these good will become more expensive (in terms of USD). Frankly, this will proportionally have a greater negative affect on the poorer strata of our population than on the more affluent strata.

So, it’s a race between the drop in the USD causing US stocks to appear more profitable domestically and the drop in sales that will be caused by inflation.

Jeff

8 Likes
9

My cost of living in Portugal, funded by an American brokerage account, is going up. In Venezuela it kept going down but not as fast as the quality of life.

The Captain

5 Likes
10

Does anyone else see a disturbing resemblance to 2006-2007 when the markets were rising despite growing deficit concerns, declining auto sales, and an overpriced housing market?

I don’t see any convincing narrative of how the national debt/deficit is going to decline or even hold constant over the next few years. Every analysis says it will skyrocket during this administration.

I don’t see any convincing narrative of how inflation will be tamed in an era of protectionism and labor shortages, particularly with immigration being limited. Is there any scenario that predicts that curtailing globalism will NOT lead to higher consumer prices?

Meanwhile:

The Conference Board Consumer Confidence Index® deteriorated by 5.4 points in June, falling to 93.0 (1985=100) from 98.4 in May. The Present Situation Index —based on consumers’ assessment of current business and labor market conditions—fell 6.4 points to 129.1. The Expectations Index —based on consumers’ short-term outlook for income, business, and labor market conditions—fell 4.6 points to 69.0, substantially below the threshold of 80 that typically signals a recession ahead. US Consumer Confidence

Rising inflation, increasing debt, sharply declining consumer confidence. Yuck!

14 Likes
11

https://247wallst.com/investing/2025/06/16/3-defense-stocks-to-buy-hand-over-fist-in-june-2025/
3 Defense Stocks to Buy Hand-Over-Fist in June 2025

One could say Fox News is behind this sector’s rise.

As Palantir Founder and CEO Alex Karp put it bluntly back in 2022, “bad times are very good for Palantir.” Of course, many of these conflicts of interest were not disclosed on air.

One of Karp’s employees, former Rep. Mike Gallagher (R-Wis.), appeared on Fox praising Israel’s war campaign against Iran.

Gallagher is now the head of defense at Palantir, a military contractor that provides AI-enabled targeting capabilities. Last year Palantir signed an agreement with the Israeli Ministry of Defense to “harness Palantir’s advanced technology in support of war-related missions.”

Fox News contributor Gen. Jack Keane (ret.) also made several appearances to discuss the war, making the case for using B-2s and bunker-buster bombs in Iran.

Keane, a prominent champion of the “surge” of U.S. forces in Iraq 17 years ago, is a former member of the board at General Dynamics, and his think tank, the Institute for the Study of War, receives funding from the company. According to his last SEC filing in 2018, Keane owned over 14,000 shares of General Dynamics stock, over $4 million in today’s value (it’s unclear how much of that, if any, he still owns today).

Former CIA Director David Petraeus also appeared on Fox News several times before and after the U.S. strike. On June 17, Petraeus told Fox anchor Martha MacCallum that the president has two choices. “One is to amplify the ultimatum he has already given of unconditional surrender and say…you agree to give up all of your nuclear enterprise, there’s going to be no negotiations about whatsoever, and to allow the International Atomic Energy Agency to have complete inspection rights, or we’re going to take out the Fordow reactor enrichment complex.”

Petraeus is a partner at KKR, a private equity firm that is a major investor in the largest property management platform in Israel, Guesty, and owns or invests in many defense companies, including Israeli cybersecurity firms. Petraeus is also a strategic adviser for Israeli-founded cybersecurity firm Semperis.

A dated but quite enlightening article:

These neo con war mongers are NOT limited to Fox News but appear on major networks news shows also as experts. And they manage to infiltrate US administrations also. Their opinions are based upon their financial greed.
The nation is influenced to spend trillions on foreign adventures that could be spent to improve the lot of the American people. See a link to a macroeconomic consequence.

It is apparent, to me anyway, that the US Main Stream Media has devolved into entertainment for the masses. Sensationalism over accurate reporting and unbiased analysis. Those two items can still be found with some hunting. But not on Main Stream Media outlets. It seems our incrementally is moving toward Huxley’s “Brave New World” where citizens are constantly bombarded with distractions, leading to the suppression of independent thought. IMO

Technology can be good or evil. The “Smart” cellphone can be a great aid to individuals. But can also buy a great distraction and addiction to individuals. The same can be said for the personal computer.

OK my apology. The soapbox goes back into the closet. LOL

9 Likes
12

Inflation has largely been tamed. Like a house cat.

The Fed will reduce rates at least once this year - likely in September.

13

The cause of crashes is debt but there are two kinds of debt

  1. Debt backed by the full faith and credit etc.
  2. Private and corporate debt

It is highly unlikely that Uncle Sam’s debt will exceed America’s full faith and credit etc. Not so private debt. 2008 had two kinds of debt, housing debt that could not be paid and banks gambling on credit default swaps.

The Captain

3 Likes
14

@btresist there is certainly a parallel between now and 2006-2007.

After the 2001 recession the Federal Reserve kept the fed funds rate exceptionally low for an extended period after the economy recovered. The Fed decided to normalize (raise) the fed funds rate beginning in 2004. By 2006 the Fed had finally raised the fed funds rate to a normal level of 5.26% which was comparable to the mid-1990s.

The extended period of low rates caused the housing bubble which peaked in 2006.

The parallels to today are clear. It took several months for the recession to start in 2007 and the financial crisis in 2008. The charts show the story.

I also agree with you about rising inflation.

Wendy

4 Likes
15

I have had that thought. Watched Consuelo Mack’s interview of historian Nial Fergusion, and he mentioned that exact scenario. He noted that it took a year or more before things crashed, even though there were danger signs from 2006 and 07. He takes a measured view, he is not saying there is a crash coming. But you can tell he is pretty nervous.

As a possible investment, he mentions that European defense companies should see large inflows of cash, as America steps/eases away from NATO. But the etf he mentioned ( SHLD, I think ) has already run up 62% or so in 2025. And I don’t know if I want to directly profit from the war machine by buying that etf. But the American defense firms are part of SHLD’s holdings, and they are also part of SPY, so I’m as culpable as all other holders of SPY,lol.

FERGUSON: ECONOMIC DAMAGE – WealthTrack

1 Like
16

That is quite different than the situation of the last few years, where the problems have come from inflation and high interest rates.

DB2

1 Like
17

In terms of Euro, 10 years ago, one euro cost about 1.11 US$, 5 years ago one euro cost about 1.13 US$, and now a euro costs about 1.17 US$. It’s been trading in a range over the last 10 years, the COVID low was just under 1 US$ for a euro, and the recent high was just above 1.2 in 2018 and 2021. Seems like a pretty stable range over those 10 years. You’re getting about as many euro for a US dollar as you did in 2021!

Here’s a chart -

Screenshot 2025-06-30 at 11.16.54 AM
Screenshot 2025-06-30 at 11.16.54 AM2062×906 118 KB

[EDITED for correctness]

1 Like
18

I don’t think you are looking at that right. On September 30th, 2022 the euro and dollar was almost at parity. It has been steadily increasing. If you look at your chart right now it is obvious that the euro vs dollar is in the high range meaning you get less euros for every dollar.

5 Likes
19

Yeah, that’s backwards.

The symbol EUR:USD means it costs $1.17 to buy €1.00

3 Likes
20

Yes, I am looking at it upside down, but that wasn’t the main point. The main point is that it’s been pretty steady over the last 10 years, roughly US$1.10-1.12 per euro on average with a range of $1.22 per euro at the 2018 high, and just under $1 per euro at the COVID era low.

[NOTE: I will edit the previous post for correctness.]

1 Like