Checking the Charts as the S&P 500 Approaches Record Highs

Jeffrey Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here with my friend and colleague, Adam Turnquist. Adam, thank you for joining. How are things where you are?

Adam Turnquist (00:11):

Happy to be back and thanks for having me. Things are good. I'm actually very excited for Monday. We hosted a baptism, first birthday party at our house this weekend. I think we had nice 50 or 60 people over, so I'm a bit tired. I was happy to get back to work today after all that.

Jeffrey Buchbinder (00:28):

Yes. Now you can go on vacation and work full-time <laugh>.

Adam Turnquist (00:32):

<Laugh>, Exactly. I doubt in the basement. I'm happy.

Jeffrey Buchbinder (00:34):

I totally get that. Well, glad you had a nice time. Hope everybody out there had a good weekend. It is Monday, June 9th, 2025 as we are recording this. So right around lunchtime Monday. Here are your lovely disclosures. Our agenda for today, we will recap last week. I titled this 'Goldilocks Appears' because stocks seem to like the mix of good data and not so good data. Next as Adam always does when he is on, we will check the charts. Of course, everybody's talking about the first close above 6,000 for the S&P and potentially a new high coming soon. Next buyback boost. So Adam, I'm glad you're on. It's nice when it works out this way. You are the author of the Weekly Market Commentary this week, which you can find on lpl.com, is about share buybacks, which I don't think get as much attention as maybe they should as a support for the market.

Jeffrey Buchbinder (01:31):

They get some political headlines around buyback taxes, but generally speaking, people don't talk about them too much as a bullish support. So interested in your thoughts there. And then lastly the week ahead, we'll talk about CPI and some of the other events of the week. Alright, with that, let's move on. So Goldilocks appears. When I mentioned the mix of bad data and good data, I was talking about the job support being good on Friday, but then we had ISM services and the ADP jobs report on Wednesday as a little bit soft. In particular, the ISM data is suggesting higher prices and slower growth, which of course is stagflation. So Adam, what do you think? My question for you is, did the market interpret the economic picture correctly with a one and a half percent rally last week? Or do you think maybe there's something else going on?

Adam Turnquist (02:32):

As a technician I'm going to use Ralph Acampora's theory, price doesn't lie, so I guess they interpret it correctly with Friday's non-farm payroll report. call it good enough to offset some of that weaker data. We had a lot of drama last week, not only on the economic calendar, but of course on the trade front with President Trump in China. That went back and forth. I think by the end of the week, the market was at least, we'll call it complacent, where things were at between the U.S. And China. And then of course the Trump, Elon Musk drama that played out and seemingly moved the market a little bit on Thursday. By Friday, things seemed to be okay. Market had a pretty good week risk on overall, and one of the big aspects of that has just been renewed interest in big tech that's been really leading off the low since April in an area that we've been focused on. Not only is tech going to participate in the rally off the lows, is it actually going to lead? And that's what we're seeing some technical evidence of at least recently.

Jeffrey Buchbinder (03:34):

Yeah, certainly. Tech strengths, good to see. I mean, Tesla counts as tech and that was one of the weakest big caps last week. So that's largely why you see consumer discretionary down a half a percent. We've seen this outperformance from the cyclicals, the high, the more economically sensitive areas of the market relative to the defensive areas, which is what you want to see, a positive signal there, Adam, as you've talked about here and elsewhere. So, moving on to the bond market. This is where maybe you could say that the market is interpreting the mixed data more positively because you did have yields end the week a little bit higher. You see the broad bond market down about 0.4%. You saw the 10-year yield back up to around four five after a dip intra week. So I think Goldilocks is maybe leaning a little bit to the positive side in terms of the economic outlook, but you also of course have potential pressure with the deficit and treasuries, concerns about demand for treasuries. So Adam, what do you think about the bond market or do you wan to highlight anything on commodities?

Adam Turnquist (04:54):

Go into the bond market first, just where yields ended last week, the 10-year below 450, the long bond just below 5%, that those are also levels good enough for the equity market to continue higher. We've seen time and time again as soon as 10-year yields breach 450 to the upside, we had that brief run to around 460, that tends to spill over into selling pressure and equity markets. So we'll call it a little bit of stability in the fixed income market and yields that are below levels that have been problematic. And it's interesting when you look back, especially the amount of tension the long bond has had, what's getting priced in in terms of whether that's term premium, fiscal deficit concerns growth. It's basically right where it started the year going back to January. So all of the headlines that have come out, we're kind of in the same ballpark of where we're at on the long bond.

Adam Turnquist (05:44):

And if you think about the growth look outlook in January, much different than now, the tariff outlook, much different than now. So not unhinged in terms of the yield curve, but certainly higher and probably for a good reason. Another area we're watching closely is just the dollar. It's getting very close to a key support level near the low end of this range. That dollar weakness has really helped lift the metals market, and gold gets most of the spotlight and deservingly so given its year to date rally, but we're starting to look at some of the more industrial metals such as copper. Silver technically is a precious metal, but had a big week last week and we're seeing some breakouts there that look really interesting.

Jeffrey Buchbinder (06:23):

Yeah, I know we've got a chart on that here in a little bit. So yeah, some nice moves in commodities, at least the commodities maybe that you'd want to move higher. You don't really want to see oil move higher, but it certainly did that last week, contributing to gains in the energy sector. So, let's turn to the charts. Adam, you kind of teased a little bit of this, but I think probably the biggest question this week is two parter. Does the S&P 500 hit a new high this week or say the next couple weeks? And then if it does, then where does it go from there? So I'm really interested in your thoughts there on the S&P 500 chart. And then we'll go into some other areas.

Adam Turnquist (07:09):

So to answer the first question, yes, I think we do at least retest those February highs. It's not a bold call by any means. We're just over 2% away from that February high at 6144. We've had this huge rally from April 8th to I think May 19th, somewhere around there. And then we got very overbought. You can see that in the panels below, some of the indicators that we look at. Percentage of stocks overbought based on their relative strength index. So when that goes above 70, that's technically overbought within the S&P over 20%. So one in five S&P stocks hit overbought levels. The RSI indicator for the index also overbought. Then we had a pause, kind of this brief pullback right to the 200-day moving average, which is where bulls came in, defended that level.

Adam Turnquist (08:01):

And now we close Friday at the 6,000 point milestone. So theory of round numbers here applies, it's exactly where it stopped, but there's really not much resistance in the way before you get to those February highs. Again, 6144, there's the December highs, January highs relatively minor compared to that all-time high. So I think we'll get there. When you look at the breadth of the market, not only how many stocks are above their 200-day moving average, but how many stocks are now in some form of an uptrend. You look at leadership, you look at sentiment, we're not at frothy levels right now, I would argue or contrarian levels. There's room for expansion there. And then positioning as well, retail trim back some of their positioning in U.S. Equities, but institutional, I think the pain trade is higher. And as long as the market continues to move higher here, I think there's likely some force buying, maybe not just at the long only shops, but in the commodity trading advisors. So, trend followers and more systematic funds are going to be forced into buying equities, which can push equities, a broader market that is higher into that record high territory.

Jeffrey Buchbinder (09:08):

Yeah, I think that last part's key positioning of institutions is still slightly below neutral. So there's a little more buying pressure probably to come and that can push us to high. So good stuff there, Adam. Pretty bullish, at least very short term up to 2%. Where we go from there, I guess is the tougher question. So this study you looked at, I mean we just had a massive rally. You don't typically move 20% in the S&P in less than a month, but that's what we did. This is 41-day study, not 28 days, but similar story in terms of the key takeaway,

Adam Turnquist (09:47):

Right? You remember our last one, we did a study that was how much the market's rallied in 28 days, the qualifier 15% or more. Well, we updated that last week or earlier this morning to reflect the rally. It's been 41 days since the April 8th low. And we looked at the top 10 best 40 or 41 day rallies based on rate of change throughout the last 75 years. The rally we've witnessed, now qualifies. It's in that top 10. Here's how the other 10 periods performed, starting from the timestamp of the 41-day mark in terms of that rate of change. Here's how they performed over the next 12 months. And you can see broadly nine out of 10 periods higher, the average return somewhere around 12%. There were a few, we'll call it brief or actually really only two periods where you had a, we'll call it a bear market type rally that was in '01 and '02, but that, that '02 period kind of overlapped with the lows set and the coming off the.com recession.

Adam Turnquist (10:53):

So that's kind of a gray area, but we'll call one bear market rally and that was in 2001, otherwise nine out of the 10 materially higher over the next 12 months. And you can see even once you get out into kind of the September timeframe, we'll call it four to five months off that 41-day rally, almost, you know, eight out of 10 are periods are pretty positive in terms of the average overall. So another study that just shows momentum begets momentum, whether it's the, the 28-day or-41 day, some pretty good analogs here for the broader market. Of course, some of these also overlap with V-shaped recoveries, notably the 2020 period, the 1998 coming off the long-term capital management recovery there. Of course, those were also accompanied by pivots, whether it was at Fed policy, maybe this time the pivot is just the trade pause that we witnessed in April.

Jeffrey Buchbinder (11:49):

Yeah. And certainly this doesn't look like the pandemic really in any way. So that what 40% rall- in this period is the post pandemic rally, which is one of the biggest, most ferocious rallies we've ever seen off of any low in our lifetimes. So this probably looks more like a a 15% kind of a next 12 months if all goes well, not 40 but nonetheless, certainly a bullish look here. I think it's fair to say.

Adam Turnquist (12:20):

Yeah, absolutely.

Jeffrey Buchbinder (12:22):

Alright, let's turn to tech. You know, obviously so important 30% of the market looks like it's not just the S&P near highs, it's tech.

Adam Turnquist (12:31):

Right. And this one is, it's a big question mark for technical strategists out there. What happens if the tech sector breaks out to new highs? I would argue it's pretty hard to be bearish on the broader market overall when the tech sector's making new highs. We're not quite there yet. You can see that area of red that's shaded how problematic that has been for the tech sector. Several retries to get through this area, but we're not far from record high territory. I would argue even coming out of earning season, we got some pretty good momentum, not just technically, but fundamentally. We learned the AI theme not going anywhere. Capex spending still remains strong. Margins look pretty good as well for the tech sector and stocks have responded quite well here, leading the market off those April 8 lows, but still some resistance. The technical level for the tech sector is 4781 that would validate a breakout to new highs in the middle panel.

Adam Turnquist (13:29):

We're looking at the tech sector versus the S&P 500 and I think this is really where it gets interesting. When we think about leadership tech has really done nothing in terms of the last year. If you just own the broader sector, you really haven't had any outperformance since June of 2024. That trend is close to changing though. You can see that ratio chart getting back above the 200-day moving average close to reversing this declining price channel. So a key chart to watch this week, and it hasn't just been a few tech names. You can see on the bottom panel how many stocks have recaptured their 200-day moving average notably higher now at 57% that comes off historically kind of these washed out levels. And we've been highlighting the fact that more and more stocks within the sector also entering some form of an uptrend from single digits early May to close to 90% at the end of last week. So again, very broad based buying key chart to watch this week. I think if we start to see a breakout here in the tech sector, I would argue the S&P 500 likely follows suit.

Jeffrey Buchbinder (14:32):

Yeah, the market is seemingly undefeated in terms of its move off of washed out levels. It took Trump pulling back tariffs, but those washouts really the powerful reversal hire for tech and the S&P. I'd say the reversal hire for small caps hasn't quite been as powerful maybe as some would have expected. But this is starting to look like a bullish formation here, Adam, and I know that seasonally actually small caps tend to do pretty well in June. What are you seeing?

Adam Turnquist (15:05):

Yeah, it tends to be a good month. The technicals here, really an interesting spot, which is why we brought the chart. We call it a head and shoulders bottom. You can see the kind of the left shoulder, the head, the right shoulder. Now this is an inverted head and shoulders bottom, but small caps right at this inflection point you have overhead resistance from the May highs. There's a retracement level in there as well. So very close to breaking out from this bottom the line to watch or the level to watch 1325 for the S&P 600. And you can see the internals of small caps 34% above their 200-day moving average. We just highlighted the S&P at 57%. So not as great in terms of the overall participation in the rally. We'll call it moving in the right direction. So really looking for a breakout there.

Adam Turnquist (15:53):

Not as a sign that small caps are going to lead, but more as a positive read through for just the health of this overall market. A breakout from this bottom formation I think would really suggest further upside for stocks in general. But as you can see in the bottom panel, don't hold your breath for small cap leadership. They've been consistent under performers over the last few years. That S&P 600 versus S&P 500 ratio chart stuck in this declining price channel below a declining 200-day moving average. So really no signs of a trend change there. Technicals suggest large over small pretty clearly here.

Jeffrey Buchbinder (16:32):

Yeah, if you're looking for diversification away from the large cap indexes, which certainly some of you are, and we recommend in general probably look to international right now before we would look to small caps. So I know we're going to go there next. Of course, small caps are more domestic, obviously international stocks much more dependent on the dollar, which is our next chart here. So what are you seeing on the dollar, Adam? I mean it's close to breaking down looks to me.

Adam Turnquist (17:00):

Very close to breaking down. In fact, we're just a few points away from taking out the April lows and that's really the last line of defense for the dollar for any technician to consider this a consolidation phase. Break that 97, 92 level on the dollar that would suggest one this downtrend that's been in place since January is continuing. And two point the downside risk for the greenback maybe to 89, $90. You can see that goes back to the 2020, 2021 lows. So significant downside risk if we take out that support level from April, positioning in the dollar remains very bearish. You can see in the middle panel just total speculative dollar short positions running a,t call it multi-year lows. They have not capitulated, you've witnessed some short covering in the dollar the last several times we've retested this area of support, that lower end of the range and that's where you've seen covering.

Adam Turnquist (17:54):

We have not seen that, and we've also had momentum rollover. That bottom panel is the relative strength index, or RSI, had a brief relief rally into the 50-day moving average near that downtrend momentum rolled over. That's your classic relief rally behavior below fifties, what we consider bearish territory and that's where it sits. So I do think there is downside risk in the dollar of course. What does that mean for the rest of the market? International tends to outperform, especially EM likes a weaker dollar. And then of course commodities are another beneficiary of a weaker dollar.

Jeffrey Buchbinder (18:27):

Yeah, we don't want it to collapse, but certainly a continued slow bleed would be generally we think good for risk assets and it would be good for our trade deficit. And another reason why we think international diversification works right now and we have sold U.S. and bought emerging market equities to kind of align with benchmarks. Before, before we get into international equities though, silver next chart. You can compare it to gold in the bottom panel, but this looks like a very bullish uptrend.

Adam Turnquist (19:03):

We're finally talking about something else than gold in the metal space. I mean, gold has been in the headlines all year just given it's out performance, not only this year but last year, but we're finally seeing some of the more industrial metals break out here. You can see silver breaking out of this range just last week, continuing higher today, even big beneficiary of a weaker dollar. And if you think about silver breaking out copper strengthening as well, and you look at the read throughs there, just in terms of the global economy, that's usually a pretty good sign. And copper's a leading indicator. I'd throw silver in the mix just given its industrial use application. Of course in the energy transition, I think it's widely used in some of the solar applications as well. But there's more upside for this rally when you look at it technically here we've had this consolidation range.

Adam Turnquist (19:51):

You measure the size of that range, you apply it to the breakout level. I think the upside or minimum upside technical based price target would be around $45. That's what the technicals are at least suggesting. What about gold? Do you buy gold or copper? Here we use ratio charts to help sort that out. And that's the bottom panel looking at silver versus gold. Very, very oversold. You can see recently hitting multi-year lows as silver widely underperformed underperformed gold over the last year and a half. We're getting a reversal or close to a reversal in that ratio chart. So I do think silver could be at least due for a little bit of a relief rally in relative performance versus gold. Especially when you look at how overbought gold is. Brief briefly hit 3,500. I think some commentary that I've read is positioning and gold that our rebalance has moved a little bit into silver and I think that's helping boost this silver price as well.

Jeffrey Buchbinder (20:46):

Yeah, and as you've pointed out, gold got a little overbought, so you might see that trigger some rotation into silver and then maybe into copper. You also want to see the more industrial use metals do better because they have a better economic signal. So something to watch certainly. All right, now here we're going to get to international equities. We say it all the time, how important currency is in terms of predicting relative strength for international equities versus the U.S. That is illustrated quite nicely here.

Adam Turnquist (21:23):

This is a normalized chart going back to the last, well to 1995, looking at the dollar index in orange. And then blue is that ratio chart between MSCI EFA. So the benchmark for international developed versus the U.S. So, when that is moving lower, that ratio chart, that means the U.S. is outperforming. And that's been the story for the last decade plus. You can see it's been pretty tough picking a bottom in that ratio chart and looking for international outperformance. At the same time, the dollar strengthening, you can see in the top panel, been a little bit sloppy, but higher highs and higher lows during that same timeframe. So no coincidence that the dollar strength has helped U.S. outperform international. Of course, as technicians we're trying to identify the capitulation point, as I alluded to earlier, if the dollar starts breaking down here and there's downside risk that would likely spill over into potential outperformance for international, we're not quite there in terms of that inflection point, but I think this is going to be a key chart for investors to watch this year if we start to see the dollar breakdown. Does this trend of international continue or does it amplify? Certainly has had-the international space has had an impressive start to the year, start to the year is probably an understatement now that we're in June, but likely another tailwind for the international space if this dollar does break down.

Jeffrey Buchbinder (22:48):

Yeah, the American exceptionalism narrative has been a little bit under attack and you know, that's one of the reasons why we don't want to see the dollar go too low. We need international buyers of our treasuries, which all else equal is supportive of the dollar and we certainly want to attract capital from overseas, even if part of the bill working its way through Congress seems to be moving in the other direction. But nonetheless, we want to attract overseas capital. And that certainly supports the U.S. dollar. So maybe some weakness here, but frankly I'd be surprised if we accelerate to the downside. Got so many people on the bear side of the boat, maybe that decline starts to slow down a little bit. We'll have to wait and see. But certainly, the dollar is an important part of the EFA or developed international equity decision. So what are the charts telling us here, Adam? And I know you don't have an EM chart here, but do you think the EM looks a little better?

Adam Turnquist (23:51):

I would argue EFA looks a little bit better than EM overall. I can see EFA breaking out to new highs here after this very sloppy consolidation phase. The internals within EFA, so we're measuring how many stocks are above there. 200 A, you can see over two thirds now. Leadership within EFA, very cyclical as well. You've had European banks breaking out to new highs almost all year. So that's what you really want to see. Broad participation, cyclical leadership, EFA's, checking the box. One area that's not ready to check the box technically is just that relative trend. Here's EFA versus the S&P 500 in the middle. Certainly an impressive start, but some of that relative strength has tapered off a little bit in the wake of just big tech in the U.S. really dominating the market over the last, call it six weeks. It's really hard for EFA to compete against the mega caps, and that's really since April 8th, we haven't had a new high in that ratio chart.

Adam Turnquist (24:46):

If you start to see a breakout though in that middle panel through those April highs, that would really check the box there for not only a breakout in absolute, but also in relative terms. Certainly a constructive backdrop overall, just not quite there yet. And then within EFA, just wanted to highlight Japan. It's an area that we're always looking at. That's been a bit of a drag on EFA up until the last few weeks. MSCI Japan starting to break out. I think they've spent some time in the penalty box just given some of the currency volatility, we'll call it in the yen, starting to work there as well. And we're seeing capital flows move back into Japan. So certainly an interesting area to look at.

Jeffrey Buchbinder (25:25):

Yeah, Europe's certainly been the leader there. Very good. Let's move on to buybacks the topic of your Weekly Market Commentary this week, Adam. I call it under the radar support for stocks. These numbers are pretty big.

Adam Turnquist (25:39):

Yeah, very big. And it was refreshing to write about something other than tariffs trade policy, that was kind of the, the goal here. And I think it did fly under the radar. There was a lot to compete with in terms of catalyst for the market coming off those April lows. A lot of that was technical headlines, oversold market, the tariff pause and trade deals behind the scenes though, buyback's very active and there's a lot of money sitting on the sidelines, at least in corporate America to put to work. And you can see as of early June, just how much buyback activity or how many buybacks have been authorized. I think coming into early June here, we don't have the exact number, but it's 750 billion that compares to at the same time last year or even 2023, around 600 billion. So there's a ton of money to put to work in buybacks. Timing worked out pretty well for corporate America as well. When you think about how much they had to buy the market went into correction territory. So it'll be really interesting to see some of the data that comes out in Q2, but we got a ways to go. Buyback window is still open until as really a bit closer to mid-July when earning season kicks off, at least for the Q2 reporting season. But certainly I think a decent catalyst here for the broader market over the last, call it month and a half.

Jeffrey Buchbinder (27:03):

So those are announced buybacks. This is executed buybacks, so actually money that goes in.

Adam Turnquist (27:09):

Right? Because if you're a company, you don't have to buy back shares. You have the optionality of when you want to execute. Management tends to execute those buyback programs when their shares are in their view undervalued or when there's maybe less economic uncertainty. Here's what happened in Q1, at least based on the data that we pulled for buyback activity within the S&P 500. So for the quarter we had 283 billion in actual buybacks. So those are ones, those are programs that are actually getting executed. That's a 23% increase, 24% increase over the buyback activity in Q4. And then when you look year over year back to 2024 or 2023, you're talking 27% increase in 38% increase respectively over those periods. So a lot of buyback activity is the headline in terms of execution at the core. You have some of the mega caps doing a lot of the buybacks.

Adam Turnquist (28:09):

You had Apple, Meta, Alphabet, Nvidia, or Google doing a lot of buybacks in the first quarter. I think they did 73 billion. The big banks. You had JP Morgan, Bank of America also buying back a lot of stocks. So it, it's been a little bit concentrated, but we're very used to that here in the S&P 500 with some of those mega caps. Again, we'll be really interesting to see how much gets done in Q2. I would expect that number to be even higher given the volatility we've had over the last six weeks.

Jeffrey Buchbinder (28:41):

Yeah, for the 493 trade policy has certainly caused folks to maybe pull back a little bit on making some of these commitments as they wait and see, you know, not just on buybacks, but also capital expenditures. So that's what you show here. Among other things, this is the performance of these different segments of the S&P 500 based on various capital allocation uses, it appears,

Adam Turnquist (29:07):

Right? So we looked at do buybacks work in theory in terms of just performance, and there's an index called the S&P 500 buyback index. Basically just companies with large buyback programs, I think the top 100. We looked at the Dividend Aristocrats Index because buybacks and repurchase programs are competing with capital for dividends. And, and those are companies that have consistently increased their dividend. We compare those two to the S&P 500 and then the equal weight S&P 500 just to give some some context around overall performance. And you can see in orange the buyback index up over a thousand percent. And this is just price. We're not looking at dividends, reinvestments or anything since 2000. So the last 25 years, notable outperformance, you compare that just to the S&P 500, up 310%, I think the dividend aristocrats up around 537%. So basically doubling roughly the performance of the Dividend Aristocrats. Now, I don't think I could sit here and say it's just the buybacks that have drove the outperformance. These companies generate a ton of free cash flow. They're typically have healthy balance sheets, so they're quality type companies. That's more of the fundamental drivers behind the outperformance than just the actual--It's not causation by buybacks, I would argue. I think that's a pretty safe statement.

Jeffrey Buchbinder (30:37):

Yeah, it's probably aligned with the quality factor, right? When you buy companies with stronger balance sheets over time, you tend to outperform. I know also capital expenditures, you know, the most capital intensive businesses do not tend to perform better than the market. So if you added a CapEx line here I bet it would not look great. Capex is shown here on this chart, but it's the dollars spent by corporations, right On capital expenditures, on dividends on buybacks, right. Nothing around stock performance on here,

Adam Turnquist (31:11):

Right? Exactly. We're just looking at total free cash flow, total CapEx dividend payouts and then buybacks in terms of the value, trying to determine, okay, how much free cash flow is the S&P 500 generating, are buybacks keeping up, and where do other line items rank in terms of whether it's dividend payouts or just CapEx? And this is going back since December, 2013, up until the end of last year. You can see total free cash flow for S&P 500 companies, clearly up into the right at basically record type levels coming into this year. How are they spending that free cash flow underneath the surface? You can see that total CapEx has ramped up significantly over the last year. Going back to December 23. You can see just the rate of change in CapEx. Of course, a lot of that being the hyperscalers spending on data centers, chip upgrades, whether it's cloud services expansion. Total buybacks is in dark blue.

Adam Turnquist (32:12):

It's trending higher, but not at the same pace as CapEx. I think there's just that added pressure to spend on AI and then total dividend payouts up and to the right, but at a much slower rate of change. Steady, of course as you'd expect for dividends. But when you think about buyback activity for the rest of the year, you look at, they're competing with CapEx, there's a lot of pressure to continue spending on AI. And then you think about the rally we've had that's brought valuations basically right back to where they started this year. Maybe we won't get as many buybacks in the second half just given that we've already had this big rally companies continue to spend on, on CapEx and just those four hyperscalers alone, spending expected, at least by Bloomberg estimates over $300 billion in CapEx this year. And that number's going up even more next year. So there's some big checks to write, whether those go to an AI data center or a buyback will be, I think an interesting data point as we look out through the rest of the year.

Jeffrey Buchbinder (33:12):

Yeah, the first thing that jumps out at me here is operating cash flow, right where you start before you get to free cash flow, is booming, right? In other words, companies have a lot of cash and they can spend it on all these things, right? But of course we know, you hit it on the head, the AI investment is just massive and that's going to hockey sticking this, this CapEx line. The market isn't really scrutinizing the big techs just yet on their spending. We did see a few years ago, Meta and its Metaverse spending was heavily scrutinized and the market basically said no pull back. And they did. Market hasn't gotten to that point with AI investment. It may at some point, but right now the market's giving these big techs a pass for their heavy capital spending.

Jeffrey Buchbinder (34:02):

So thanks for that Adam. Really, really interesting stuff. Again, Weekly Market Commentary from Adam on lpl.com. Let's go to the week ahead. And I think other than the economic data and CPI, we have this Apple Developers conference, which gets a lot of attention. And then we're going to get probably some text from the Senate bill, the tax reconciliation bill, working its way through Congress. It's going to be tough to get the House and Senate together. But the first step is to see what the Senate wants to do. Any thoughts here on these economic data points? Adam? What should people be watching for?

Adam Turnquist (34:38):

Well, of course, CPI, we started off with this Goldilocks narrative. I think this week's CPI report certainly could extend that narrative, keep it alive. One other area that we'll be watching is just treasury auctions. We have a 10 and 30-year auction later this week, the reopenings, but certainly a big test. Last week we had a ton of supply on longer duration globally. Market absorbed that quite well. We'll see if we get any demand flows especially the foreign investment in in those auctions. We'll be watching that carefully.

Jeffrey Buchbinder (35:10):

Yeah, 10-year yield's so important. Wanna keep it in this range. And therefore we need those auctions to go. Well the, I guess there's a few things to watch on the Senate bill. The revenge tax, the 899 is probably going to stick but not involve treasuries or treasury interest. This is essentially tax on income earned by overseas entities in the U.S. So that's something to watch. It's probably going to be there, but don't be too scared. Buy it because it's going to be watered down and certainly not the worst case scenario. And then the salt tax will probably come down off of the 40 grand that the house proposed. That's another thing to watch, but just high level, it's probably not going to make the deficit any worse over the next 10 years. It has a shot depending on the growth outlook to make the deficit a little better, but it's just not enough.

Jeffrey Buchbinder (36:03):

This is not a deficit reduction bill by any interpretation. If tariff revenue comes in there, it still doesn't really make much of a dent in the deficit situation. So that's maybe the high level takeaway. We'll see how the market interprets that when it comes out. But watch the yields. 'cause That's how the market's going to interpret it, right? That's where it's going to show up. If the bond vigilantes don't like it, you'll see higher yields. So those are the key things to watch this week. We'll go ahead and wrap there. So thanks Adam for jumping on this week. Really. great to hear from you on the piece you wrote about buybacks and, and always love your insights on the charts. So we'll see what happens. S&P 500 new highs could happen soon. We'll have to wait and see. So thanks everybody for listening to another LPL Market Signals. We will be back with you next week. See you then and take care. Bye.