US President Donald Trump met with Ukrainian President Volodymyr Zelenskiy on Monday, with Trump stating that Putin wants to end the war in Ukraine. The meeting comes ahead of a potential trilateral talks between the US, Russia, and Ukraine.
The economic data released last week gave investors something to justify their positions, with bulls gaining confidence in the market despite concerns about inflation and a weakening job market. The US Consumer Price Index (CPI) reported a 2.7% inflation rate, slightly above expectations, but still below the Federal Reserve’s target.
Despite this, the Bulls gained traction last week, particularly in small caps and the housing sectors. The S&P 500 and Nasdaq reached new highs, with volatility falling to its lowest level since December.
The labor market is showing signs of improvement, with jobless claims remaining low and continuing claims relatively elevated. However, finding a job remains challenging for young people and recent graduates.
Interest rates are a key factor in the market’s optimism for a Fed rate cut. The 2-year note has been declining, indicating a potential shift in policy. The housing sector is expected to benefit from lower interest rates, with small caps (IWM) and semiconductors showing strong relative strength.
The modern family improved significantly this week, with strength in IWM, IBB, and XRT. However, large cap foreign equities regained their leadership but hit overbought levels.
Neutral signals include mixed market internals, even distribution and accumulation volume, and short-term overbought conditions in large-cap foreign equities.
For actionable trading guidance, focus on recent leadership in small caps (IWM), clean energy (TAN, PBW), solar (FSLR, ENPH), transports (IYT), retail (XRT), and biotech (IBB). Consider a growth-heavy setup, with sector rotation trades and mean reversion strategies. Monitor any Fed commentary or data that could affect rate-cut expectations.
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Source: https://www.investing.com/analysis/fed-rate-cut-hopes-fuel-housing-and-small-cap-momentum-200665414