The U.S. stock market ended the week with widespread gains and a burst of volume thanks to the annual Russell indexes rebalancing. Volatility remains low with the S&P 500 index trading without a 1% (daily) move for 50 days in a row. That's a 19-year record.

The S&P 500 could mark another record on Monday. June 30th ends the second quarter and the index is poised to hit its longest run of quarterly gains in 16 years. Of course this is one of the most hated bull markets in history. Investors continue to pull money out of the equity market. The Investment Company Institute said equity funds saw outflows for the eighth week in a row.

Year to date the S&P 500 large cap index is up +6.0%. The NASDAQ composite is up +5.3% and the small cap Russell 2000 index is up +2.2%. The transportation average is up +10.4%. The SOX semiconductor index is up +17.6%. Biotechs are some of the best performers with the group up +18.6% in 2014. The recent rise in crude oil has boosted energy stocks. Crude oil is up +7.2% this year. Oil stocks are up +12.0% and oil service companies are up +9.9%. Meanwhile silver prices are up +7.6% and gold is up +9.2% for the year.

Economic Data

Economic data remains mixed. The shocking headline of the week was the third estimate on U.S. Q1 GDP growth. The first estimate was +0.1%. The second estimate was revised to -1.0%. The third estimate last week was revised lower again to -2.9%. That is the worst quarterly reading in five years and a big drop from Q4 2013's +2.6% growth. The revision between the second and third estimates on Q1 growth was the biggest drop on record. You don't go from +2.6% growth to -2.9% growth on a cold winter. Blaming the drop on the weather doesn't hold water any more. They say two negative quarters in a row is a recession. The U.S. tends to see a recession every five to seven years. Guess what? The last recession ended around June 2009. That was five years ago.

There was some good news for the residential real estate market. Existing home sales in May surged +4.9%. That's the biggest gain since 2011. The seasonally adjusted annual rate rose from 4.66 million to 4.89 million. New home sales surged +18.6%, which was the biggest one-month jump since January 1992. New home sales in May came in at 504,000. That is up from 425,00 and the first month above 500K since May 2008.

The University of Michigan Consumer Sentiment survey's final reading for June was revised from 82.0 to 82.5. The Conference Board's Consumer Confidence index rose from 82.2 to 85.2. That is a six-year high.

Overseas Data

The Eurozone's manufacturing PMI dropped to a six-month low with a move from 52.2 to 51.9. Numbers above 50.0 still indicate growth. France said their Q1 GDP grew at +0.0%. In Asia there was some improvement in manufacturing. The Chinese HSBC manufacturing PMI jumped to an eight-month high and hit growth territory with a move from 49.4 to 50.8. Japan said their manufacturing PMI also move into growth territory with improvement from 49.9 to 51.1. Unfortunately, Japan also reported that household spending crashed -8.0%, following the sales tax hike in April.





Major Indices:

The S&P 500 has a 25-year trend of trading down the week after June option expiration. Last week it did it again with a -0.1% decline. With the bounce from Thursday's low the S&P 500 looks poised to breakout to new highs again.

If the market does see a pullback then the 1920 and 1900 level are likely support. I'd focus on 1900 as the level to watch. If this rally continues then 1980 and 2000 are overhead resistance. The 2,000 mark is key and could be significant round-number resistance.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite bounced off short-term technical support near its rising 10-dma again. This rebound lifted the index past resistance at its March highs. The NASDAQ ended the week at new 14-year highs. It also closed just below potential round-number resistance at 4,400.

If stocks correct I would look for support near 4300 and 4200. If the rally continues we can look for resistance near 4450 and 4500.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index eked out a +0.09% gain last week. The index managed a bounce off a trend line from its May lows. There is still overhead resistance near 1200 and its March highs around 1210. If the $RUT breaks down below its new trend line of support I would not be surprised to see it drop towards the 1140 area.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's a busy week for economic data. The U.S. stock market closes early on Thursday and is closed all day on Friday for the July 4th holiday. The non-farm payrolls (jobs) report that normally comes out on a Friday will be released early on Thursday. Current estimates are for +213,000 new jobs in June.

We'll also see the ISM index and ISM services index released this week. The European Central Bank will update their interest rate policy. After that announcement will be a press conference with ECB President Mario Draghi.

Economic and Event Calendar

- Monday, June 30 -
Chicago PMI for June
Pending Home Sales

- Tuesday, July 01 -
ISM Index
Eurozone unemployment
Auto and truck sales

- Wednesday, July 02 -
ADP Employment Change Report

- Thursday, July 03 -
Weekly Initial Jobless Claims
ECB interest rate decision
ECB President press conference
Non-farm payrolls (jobs) report
Unemployment rate for June
ISM services

U.S. markets close early

- Friday, July 04 -
U.S. markets closed for holiday

Additional Events to be aware of:

July 30th - FOMC meeting
Sept. 1st - U.S. market closed for Labor Day

Looking Ahead:

As we look at the week and month ahead the market's focus should turn toward earnings. Q2 earnings season will begin on July 8th but they will start to pick up steam the following week. TrimTabs noted that stock buybacks have slowed down. The massive amount of buybacks in the first quarter helped corporations meet or beat earnings estimates. A slowdown in buybacks might jeopardize corporate earnings results.

Corporate guidance will be a big deal. After the disastrous Q1 GDP growth everyone will want to know what corporate America expects Q3 and Q4 growth to look like. A couple of months ago everyone was expecting a sharp snapback surge in Q2 growth as the weather improved. Now that enthusiasm has waned significantly. The Federal Reserve recently lowered their full-year 2014 growth estimate from +2.9% to +2.2%. Yet after the Q1 GDP drop of -2.9% the U.S. would have to see almost +4.0% growth the next three quarters in a row to meet the Fed's estimates. That is not going to happen. You can bet the Fed will lower their estimate again.

Looking at the calendar we're at the start of a new month and a new quarter. On a short-term basis mutual funds should have new money to put to work on Monday. July is normally the best month of the third quarter but that's only because August and September have such terrible records. Speaking of the calendar, June 30th is Argentina's deadline to make its debt payments. They're not going to make it and will have a 30-day grace period before technically defaulting (again). Odds are we'll hear more about Argentina in July.

Saturday June 28th was the beginning of Ramadan. This is the holy month for Muslims around the world. Will this have any effect on the violence in Iraq? Will there be more violence or less violence? Unfortunately the Sunni jihadists in the ISIL continue to push south toward Baghdad, the capital of Iraq. The latest information would suggest that half of the official Iraqi army has either been defeated or they have quit. The Baghdad government will have to depend on foreign help to defend themselves. Russia has already delivered fighter jets to Iraq since the U.S. has failed to deliver on its promise for jets. Odds are growing quickly that the borders of Iraq will not return to normal. The Kurds are likely to carve out their own country to the north. That will leave the Shias and the Sunnis to fight it out in the south.

Looking back to the U.S. markets, the major indices continue to trend higher. We might continue to melt up for the next two weeks. At that point market direction will likely depend on corporate guidance. The wild card would be some new unexpected development in Iraq or Ukraine.

Normally the stock market tends to see a -10% correction about twice a year. Thus far the S&P 500 has gone 999 days without a -10% correction. How much longer can this trend last? It's a terrible market cliché but "the trend is your friend - until it's not!"

James