Treasury yields, crude oil and the dollar all cleared key technical levels last week, and the S&P 500 slipped below its 50-day moving average. Piper Sandler’s chief market technician, Craig Johnson, calls that combination a triple threat, and a growing worry among some chart watchers is that it sets stocks up for more losses. He also names the sectors that still look technically strong.
Three technical breakouts in three different markets have pushed the S&P 500 below its 50-day moving average, the level many chart watchers use to track shorter-term trends. Craig Johnson, chief market technician at Piper Sandler, calls that combination a triple threat, and a growing worry among some chart watchers is that it sets stocks up for more losses.
The week hurt for other reasons too. Disappointing earnings from Alphabet and Tesla cast a pall on Big Tech and the artificial-intelligence trade, even with a bit of stabilization on Friday.
Yields, oil and the dollar all broke out
The benchmark 10-year Treasury yield, which mortgage rates are based on, surged last week above chart resistance marked by the May 19 closing high of 4.66%. Even after a slight dip on Friday, the yield ended the week at 4.68%, the highest weekly closing yield since January 2025.
WTI crude-oil futures broke above their own 50-day moving average, which ended Friday at $84.21 according to FactSet data. Upside levels to watch start at the May highs in the $105 to $107 range. Both surges came as the Iran war intensified, which boosted the odds that the Federal Reserve will raise interest rates sooner rather than later.
Third came the ICE U.S. Dollar Index, a gauge of the greenback’s strength against a basket of six major foreign currencies, which has confirmed the breakout of a long-term consolidation pattern to suggest a new long-term uptrend was starting. The actual breakout occurred in June, and the pullback that followed took the form of a flag pattern that tested support at the breakout point.
Why a firmer dollar matters for the S&P 500
A rising dollar reduces the value of sales and profit that multinational companies earn overseas. Because strong earnings growth has provided the fundamental fuel for stocks for the past year, anything that might drain that fuel adds to the negativity.
Johnson reads the S&P 500’s breakdown below the 50-DMA as warning of a potential correction pullback this summer.
Energy, financials and utilities hold above their 50-day averages
Yet Johnson also sees the breakdown creating opportunities, because it leads to “a more defensive rotation” into sectors showing some technically bullish tendencies. The State Street Energy Select Sector SPDR ETF has surged above its 50-DMA and is threatening to break out of its recent flag-consolidation pattern in the direction of the previous uptrend.
The State Street Financial Select Sector ETF looks technically strong after support at its 50-DMA passed a big test in early June, and it reached a record high earlier this month. That sector beat second-quarter earnings expectations by wide margins and has seen the largest revenue growth rate of the S&P 500’s 11 key sectors, according to data provided by John Butters, senior earnings analyst at FactSet.
Higher longer-term rates can also boost bank earnings, as banks earn more spread between long-term assets, like loans, and the lower-rated shorter-term liabilities funding them. Johnson additionally noted that industrials, utilities and healthcare showed relative strength above their 50-DMAs last week.
Source: MarketWatch
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