Following the June 10 inflation release, headline CPI rose to 4.2% year-over-year (up from 3.8% the prior month), with energy and fuel costs driving much of the increase. While domestic equities benefited from three 25 basis point rate cuts in 2025, the policy backdrop has shifted, and the new Fed Chair now faces a more complex path in managing inflation going forward.

As inflation pressures build, markets have begun to price in the possibility of a rate hike later this year. According to the CME FedWatch Tool, implied by Fed funds futures, there is currently a 56.5% probability of a rate hike at the December 9, 2026 Fed meeting as of this writing.

The key question is how equities will respond. Markets tend to react quickly to changes in economic data, and if inflation continues to rise—keeping rate hike expectations elevated—equity markets could face pressure in the months ahead. Higher discount rates would weigh on valuations, potentially leading to weaker returns.

The chart below examines prior rate hike cycles, showing S&P 500 (SPX) forward returns across various time horizons following the initial hike. Several patterns stand out:

1. Short-term returns are mixed, with 1-week forward returns averaging 0.09%.
2. 1-month and 3-month returns tend to soften, averaging -0.10% and -0.26%, respectively.
3. 6-month returns average 3.43%, remaining below long-term historical averages

Taken together, the data suggests that equities may experience some near-term headwinds around the onset of tightening cycles. However, it is important to avoid overreacting. Rate expectations remain fluid and will continue to adjust as new data emerges. Positioning too defensively too early can lead to missed opportunities, especially as domestic equities continue to exhibit underlying strength despite recent short-term volatility.

The State Street SPDR S&P 500 ETF Trust (SPY) sits on two consecutive buy signals, after its latest double top break at $700 in April. SPY maintains a strong fund score of 5.13, with a positive score direction of 0.73. Although the fund did reverse into Os over the past week, this only demonstrates near-term minor weakness, as the weight of the evidence is still overwhelmingly positive. If weakness does occur, the move will be highlighted in the fund score, along with the various other tools available on the platform. Initial support is at $630, with additional strong support $510.

After negative action last week, U.S. equity indices have rebounded this week through Thursday’s (6/11) trading with small caps leading the way to the upside with the Russell 2000 Index (RUT) up more than 3%. From a subsector perspective, semiconductors have helped assist in this week’s rebound with the NDW Semiconductors Index (DWASEMI) rallying more than 8% - second among the NDW 40 subsector indices - after falling more than 6% last week. The prior two weeks’ worth of trading has brought a number of semiconductors stocks down from highs, leading to technical changes for individual stocks and within the technical indicators for the subsector. Notable recent changes in technical indicators are covered below, along with how recent trading within a few semiconductor stocks provide examples of how to assess recent pullbacks or breakdowns.

While the bullish percent (BP) for semiconductors (^BPSEMI), which measures the percentage of semis stocks that maintain buy signals on their default point and figure chart, fell from its high point through May, last week’s negative trading capped off with the BP falling from 70% to 34%. This marked the lowest chart level since the beginning of April and suggested just a third of the semis stocks traded on buy signals through the end of last week. The positive rebound this week has brought the BP back into a column of Xs above 42%, showing that some of those names were able to return to buy signals.

Along with the BP shifting notably lower to cap off last week’s trading, the RS in Xs indicator for the sector, which measures the percentage of stocks that maintain positive near-term market relative strength (RS) against the S&P 500 Equal Weight Index (SPXEWI), fell from the lower 80% range to 58%. While this still suggests the majority of semiconductors’ stocks maintain positive near-term market RS, the chart now sits at its lowest level since the beginning of April.

A silver lining resides within the fact that the positive trend indicator for semiconductors (^PTSEMI) still maintains a reading north of 80% after rising to 88%, its highest level since early 2021. It is worth bearing in mind though, the PT sits within one box of reversing down into Os, but even a reversal would be well above readings from the beginning of April.

Given the downside within the indicators highlighted, those positions contributing to the subsector’s indicator deterioration are ones investors will likely be monitoring closely or potentially assessing whether to continue to maintain exposure. Below are a couple examples of recent breakdowns along with a semis name that is actionable after its recent pullback.

Among the notable semis names to see negative technical developments this week is Broadcom (AVGO). The stock gave a second sell signal at $384, completing a bearish catapult as shares fell to $372. Additionally, the market RS chart reversed down to Os following Wednesday’s (6/10) trading, leading AVGO to drop to a 3 technical attribute stock. The stock continues to maintain a long-term positive trend and positive long-term relative strength against the market and its peer group, so investors are likely to still hold here. A reversal in Xs higher toward the back half of this week provides a near-term bounce for the stock, but AVGO is one to closely monitor. Prior resistance in the $350 to $360 range may be seen as near-term support, while the bullish support line sits at $340.

Though the long-term picture remains positive for AVGO, nLIGHT Inc. (LASR) has witnessed a level of technical deterioration that may warrant its removal from portfolios. Last week’s trading capped off with a second sell signal at $69 on the default point and figure trend chart along with a reversal into Os on the market RS chart. Additional negative action followed this week as the stock gave a third sell signal as it violated its bullish support line, dropping the stock down to a 2 for 5’er. Though the stock has rebounded off its lowest level since April and returned to a buy signal, the technical damage has been done, and the rebound offers an opportunity for those who may still hold it to lighten up on exposure or step away, depending on cost basis.

Taiwan Semiconductor Manufacturing (TSM) provides the actionable semiconductors name after pulling back from last week’s high.  From a relative strength standpoint, TSM has maintained positive long-term market RS since May 2024 and peer RS since August 2024. TSM has maintained a positive trend since May 2025 on its default trend chart and a buy signal since early April. May’s trading closed out with a fourth buy signal upon the triple top break at $424 before shares moved to highs to kick off June. This week’s trading brought TSM back into Os near the $400 level and actionable territory. Initial support lies at $388, while additional support can be found at $364.

While these are a few examples of how to assess recent action with semiconductors stocks, it doesn’t cover the full gambit of technical action that may have occurred. Should there be any questions about a particular position, feel free to reach out to the analyst team for assistance.

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