A quiet week of major economic data means investors will be paying extra attention on the Fed speakers this week.
This week, investors will closely watch the interplay between tech sector performance, yield movements, and Fed commentary to navigate the financial markets.
A four-day trading week ahead won’t do much to stall momentum in the tech sector, writes Jay Woods, chief global strategist at Freedom Capital Markets (NASDAQ:FRHC) in his latest newsletter.
The red-hot S&P 500 recently benefited from a decline in the 10-year Treasury yield, which closed at its lowest weekly level since February.
“As the 10-year declines, equities should rally,” Woods writes. “We saw that with the large caps but the small caps have yet to get going.”
The 10-year yield, crucially positioned at its uptrend line from last March’s low, shows signs of potential further decline, as indicated by momentum indicators like the RSI and MACD, which point to possible weakness and a test of the 4% level.
That could eventually spark a rally in small-cap stocks, according to Woods.
With a sparse economic data calendar, market participants will be closely monitoring comments from Federal Reserve officials. Following last week's revised dot plot, which now suggests only one potential rate cut instead of three, traders are eager to hear any new insights, especially as inflation data appears to be easing.
And in the tech space, competition among the world's largest companies by market cap is heating up, with Microsoft reclaiming the lead from Apple, while Nvidia has momentarily risen to the second spot but not secured the top position.
These shifts are significant ahead of key fund and index rebalances in June, including the rebalancing of the 11 SPDR Select Sector ETFs on Friday. Currently, Microsoft constitutes 22.5% of the index, Apple 21%, and Nvidia 6%. A further rise in Nvidia shares could follow if it secures a top-two position.
Earnings reports this week will be limited, with a notable pause on Wednesday for Juneteenth.
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