U.S. stock futures took a downward turn on Tuesday morning in yesterday’s volatile price action where the bulls were once again unable to hold early gains. Federal Reserve Chair Jerome Powell is scheduled to address a policy panel at the European Central Bank Forum at 9:30 a.m. ET. Additionally, the release of the May job openings and labor turnover report will provide further clarity on the state of the U.S. labor market. Investors are also looking ahead to Friday, when the June jobs report.

The European markets trade red this morning, with the Stoxx 600 index declining by 0.57% as of 11 a.m. in London. Inflation data from the euro area provided a mixed picture; while headline inflation experienced a decrease to 2.5% in June, as reported by the European Union’s statistics agency, core and services inflation figures remained elevated at 2.9% and 4.1% respectively.

Asian markets, the Nikkei 225 surged past the 40,000 thresholds, a peak it hadn’t reached in the previous three months. Conversely, the Topix index narrowly missed setting a record for its all-time closing high. The Japanese yen experienced a significant dip, sliding down to 161.67 against the US dollar, marking its weakest position in nearly four decades. Meanwhile, in South Korea, the Kospi index closed 0.84% lower. Across the waters, Hong Kong’s Hang Seng index saw a modest rise of 0.33, and the Australian market witnessed a slight downturn, with the S&P/ASX 200 dropping by 0.42%.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday before the bell include MSM, & RDUS.  After the bell include SLP.

News & Technicals’

The U.S. stock market has witnessed a significant shift in its composition over the past decade, with the 10 largest companies now representing more than a third of the S&P 500 stock index, compared to just 14% a decade ago. This change has been largely fueled by the meteoric rise of technology giants, often referred to as the “Magnificent Seven”: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. Their combined market capitalization has soared, driven by widespread tech enthusiasm and their increasing influence on consumers and businesses alike.

This concentration has sparked a debate among market observers. Some experts express concern that such a heavy weighting towards a handful of tech behemoths could expose investors to heightened risks, particularly if these companies face regulatory challenges, shifts in technology, or changes in consumer behavior. On the other hand, some analysts argue that this concentration is not worrisome, pointing to the companies’ robust earnings, solid growth prospects, and the fact that they are at the forefront of innovation and market trends.

The divergence in opinion highlights the complexity of market dynamics and the challenges in predicting the impact of market concentration. While the dominance of these tech giants is clear, the long-term implications for the market and investors continue to be a subject of intense scrutiny and debate. Whether this concentration is a harbinger of risk, or a non-issue will likely depend on future market conditions, regulatory environments, and the companies’ continued ability to innovate and adapt.

The political landscape in the UK has been dominated by a singular narrative since Conservative Prime Minister Rishi Sunak announced a general election in May — the forecast of a sweeping victory for the Labour Party. Voter polls have consistently shown a significant advantage for the Labour Party, suggesting a lead of approximately 20 points over the Conservative Party. Despite this, the Labour Party has maintained a cautious stance, refraining from commenting on these projections. Their reluctance is rooted in the understanding that polls can be volatile, with results that can “vary and fluctuate.” This measured approach reflects a broader awareness of the unpredictability inherent in political campaigns and the potential for last-minute shifts in public opinion. As the election draws nearer, all eyes will be on whether the Labour Party can convert their lead in the polls into actual votes and possibly reshape the UK’s governing body.

Iran’s political arena is set for a pivotal moment with a runoff election scheduled for Friday, July 5. This election features a stark contrast between a right wing hardliner and a reformist candidate, reflecting the nation’s deep divisions amidst severe economic, social, and geopolitical pressures. The initial round of voting saw a historically low turnout, with only about 40% of eligible voters casting their ballots. Despite the low participation, the results were telling reformist Masoud Pezeshkian emerged as the frontrunner, securing 10.4 million votes out of the 24.5 million total votes. Close on his heels was the hardline candidate, Saeed Jalili, a former nuclear negotiator, who garnered 9.4 million votes. The outcome of this runoff has the potential to significantly influence Iran’s future direction, as the two candidates offer vastly different visions for addressing the nation’s challenges.

In another day of volatile price action, the bulls were unable to hold early gains.  Although the DIA, SPY and QQQ remain in bullish patterns there are hints the bears could be waking up from a very long slumber.  However, the low volume of a holiday week adds to a lot of uncertainty on the path forward.  Plan your risk carefully and have a plan to protect yourself if the bears do suddenly decide to attack.

Trade Wisely,

Doug