"Knee High by the Fourth of July"

Corn is not the only asset that made headlines this Independence day

I believe “All-time high by the Fourth of July” would be a better suited title, but for the sake of being too corny I’ll pass on it (yikes).

As we begin a new quarter, various asset classes across the spectrum continue to make headlines. Treasury bonds, several commodities such as Corn and Coffee, Real Estate, Precious metals, specifically Gold, all of which had very important price moves this past quarter. The infamous cryptocurrency, Bitcoin had a monster performance in Q2, closing on June 30th up nearly +200% QTD. But this Independence day it’s US Stocks that people cannot stop talking about. On July 3rd, All 3 major US indices closed at all-time highs. Although the S&P 500 is up +4.28% from its peak in January 2018, printing a new all-time high suggests that stocks may finally be ready to put the last 18 months of range trading in the rear view mirror.

The 3 major US indices are not the only areas making new all-time highs. Included in Wednesday’s record breaking session are the below.

Russell 1000 Large-Cap Index

Russell 3000 Index (98% of all US equity securities)

Russell Mid-Cap Index

Small and Mid-Cap stocks continue to under-perform. And despite the Russell Mid-Cap Index $IWR making a new all-time high, the S&P 400 Mid-Cap index $MDY is lagging heavily behind. The below displays 1yr trailing returns of major mkt-cap size ETFs.

The Financial sector led the way for stocks in Q2, at +5.32% as of 6/28/2019. I consider this evidence that the recent move to all-time highs may prove to be sustainable in the long run. If stocks are going higher, we want to see financials participating. The below is a daily chart of $XLF SPDR Financials ETF. Price is now above the downtrend line beginning back in January 2018, but is yet to make a new high above its most recent peak ~$28 per share. The 14 period RSI after hitting oversold territory in December, is yet to revisit this condition since.

The below is a ratio chart of $XLF vs. $SPY S&P 500 ETF 1W: We’re seeing momentum continue to churn on its Relative Strength Index despite the chart displaying a downtrend (lower low, lower high) since February 2018. However not a forecasting tool; if other pieces of the puzzle are supportive, this can be indicative of a trend reversal. If Financials are in a period of out-performance relative to the broader market, it is more often than not, bullish for the stock market as a whole.

I’ll be keeping an eye on whether or not financials can post a new high above $28 per share. If we see continued strength out of this sector, it could aid in small cap participation as well. In my opinion, this would be considered extremely bullish for the asset class as a whole. That’s enough out of me, Happy Fourth of July!