Logic said that stocks would have a hard time breaking above 6,000 for the S&P 500. Yet it took only a few weeks consolidating below that level to close above on Friday and we have stayed above since.

Not a convincing break out. More of an inch by inch progression.

This reminds me of the analogy that the stock market is like a helium balloon. Meaning that its natural propensity is to rise unless there is a stronger opposing force pushing it down (like increased fears of recession).

With those fears receding it does make some sense to slink above 6,000 at this stage. What happens next is what forces are applied to that helium balloon. Let’s discuss it all in the commentary that follows…

Market Outlook

Plain and simple investors have gotten used to Trump’s style of negotiating tariffs as they did back in 2018. Thus, there is little reaction to the negative headlines as they appear.

Kind of like the boy who cried wolf…investors don’t want to react until they see the wolf on their doorstep with blood dripping from its fangs. Otherwise they will assume that all will be well with tariffs…the economy…and thus the stock market.

Helping increase their faith is to see that the soft -0.3% GDP read from Q1 is now predicted to be +3.8% in Q2 according to GDPNow. Interestingly the Blue Chip Economist panel still sees 1% as the likely outcome for this quarter. I sense their estimate will come up given the recent slate of above expectation economic reports.

So with little pressure from tariffs on the economy pushing down the helium balloon of the stock market…then no wonder it continues to drift higher.

Also good to note the recent strength of small caps that are topping their large cap peers both the past week…past month and past 3 months for that matter. This was long overdue and has more room to run given several years of dominance by large caps.

Few people are talking about inflation with tariffs being center stage. But lets not forget the justified concern that in the short run tariffs are inflationary to US consumers. So it will be interesting to see the CPI report on 6/11 followed by PPI on 6/12.

I don’t think either will change the Fed’s decision to sit on their hands at the upcoming 6/18 meeting. But maybe it moves the needle for the July 30^th meeting where now is only a modest 15% expectation of a rate cut. Note that September 30^th meeting stands at 62% probability of a quarter point cut.

Back to the main point…not much is in the way of stocks going higher in the current period with low news flow on tariffs. The sooner that gets resolved positively…the sooner we make a break for the all time highs at 6,147.

On the other hand, still possible that things bog down on trade talks with a steady flow of negative headlines (the China deal ain’t over til its over).

More likely than not things resolve amicable and the economy continues to grow and stocks go higher. That is why it is still wise to lean bullish under the heading “cautiously optimistic”.

That strategy has served us well with ample gains in hand since the April lows. Hopefully we keep on the ascent. As always, sleeping with one eye open in case things degenerate on the tariff front leading us to get more defensive. Until then assume that the helium balloon filled with stocks continues to float higher.

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SPY shares rose $0.42 (+0.07%) in after-hours trading Monday. Year-to-date, SPY has gained 2.63%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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