As we’ve entered the summer months, the market and news flow have become more mixed. On the tariff front, things were quiet for a few weeks, but now many of the threatened tariffs from earlier this year are being put back on … though some deals or truces are being announced, too. Then there’s the Fed, with hopes rising for a rate cut in September … but as I write this, it’s a 50-50 chance. Even the market itself seems to be meandering, with good news (solid financial earnings and some trade deals) actually being sold while worrisome news (E.U. tariffs) has seen buyers step up.
What does it all mean for the near and longer term? Today I’m stepping back and sharing a few main thoughts and ideas I have on the market, on some stocks and with regard to some sectors—like the environment of late, there’s some good, some bad (or not as good) and a few things to key off of as we roll into earnings season.
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5 Stock Market Developments We’re Watching Now
First, let’s touch on the market’s big picture: Frankly, it looks great, and while I’m not big on predictions (better to simply follow along), there’s a ton of evidence that suggests the market will be meaningfully higher in the months down the road. One of my favorite recent studies is also one of the simplest: The S&P 500’s gain during the two months from the April panic low (of 20%) or three months from the low (25%) is so strong it’s only been seen five other times since 1950—and all five times were early in what ended up being 12 to 24 month uptrends coming off major lows. Obviously, that doesn’t guarantee anything, but when combined with the prior panic selling and mundane long-term sentiment (June’s Schwab Trading Index, a measure of how its clients are positioned, remains near multi-year lows) tells me the market is likely to be up nicely when looking six to 12 months out.
Second, though, when looking at the market in the near term, I do think there’s some risk. We’ve seen some shorter-term sentiment measures spike higher (a lot of reluctant bulls have thrown in the towel), and there have also been wobbles among growth leadership while money reached into the broad market. As long as leaders don’t crack key support (which they haven’t), that’s not bearish, but three to four months after major lows regularly sees a rest period (like the one starting in June 2003) or a shake-the-tree selloff (like the dip/rest in June 2020), both of which often crack a few stocks while upping the fear level. Don’t get me wrong: I’m not looking for some huge 10% to 15% correction in the indexes or a wipeout among leading stocks, but both the length of the rally so far and the quietness of late hint that some air pockets might come.
Third, if we do get a pullback or some shakeouts on earnings, I think it could prove to be a good chance to get in some established growth leaders that pull in to support. To be clear, this will probably mean something more than just a two- or three-day dip—given the runs we’ve seen (both in price and time), it’s possible these names need two to four weeks of shaking and baking. Still, I do think the first “real” retreat in something like Seagate Technology (STX), Robinhood (HOOD) or Oracle (ORCL) has a very good chance of eventually giving way to another leg up, so if you missed them, keep an eye on them for entries if things start to wobble.
Fourth, while I’m a growth guy, I’m also a student of the market, and after nearly three years in the doghouse, I do think some more cyclical areas have a chance to do well going forward. Granted, some of the names I’m interested in stand on the growth/cyclical border—Viking Holdings (VIK) and all cruise stocks have broken out on the upside as the travel boom continues—but I also wouldn’t be surprised if some old-school areas get going, like oil stocks: They still need some work, but I think there’s a good chance April’s puke low (which brought the Oil Exploration Fund (XOP) down 40% from its peak three years ago) was the low and energy stocks could be nicely higher down the road.
Lastly, I have to talk about some growth sectors—I can’t get through an article without mentioning AI, where I’ve been impressed by the broadening out of the theme. Yes, networking/chip plays remain very strong, but so too do power plays (both infrastructure and nuclear, like Cameco (CCJ) and so-called “neo-clouds” like CoreWeave (CRWV) and Oracle (ORCL), which are rapidly building out capacity to “host” everyone’s advanced AI models. While no two periods are exactly alike, the AI buildout and usage have mirrored the Internet building out back in the late 1990s.
Moreover, while some traditional growth areas have been subdued (software, retail) during the rally, the crypto space is intriguing to me—obviously Bitcoin (IBIT) looks good, but I’m becoming more interested in how the ecosystem is evolving. It sounds like stablecoins (a digital coin that’s tied to something stable, like T-bills or the U.S. dollar) could be even bigger than bitcoin, with real everyday use (retailers allowing payment in them to settle quicker and more securely) possible in the years ahead.
Coinbase (COIN) is like a NYSE/Schwab combo for the crypto world, with trading revenues still the biggest piece of the pie, but it has a long-term deal with Circle (CRCL), issuer of the second most popular stablecoin (dubbed USDC) where it essentially collects a good share of revenue as that coin’s usage expands. And after 15 months of no net progress, COIN has changed character of late, zooming to new highs on big volume. This is another name that’s on my watch list, and I’d be tempted if we see shares shake out a bit, possibly alongside a market rest period.
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