The S&P 500 closed at 2,071.22 on Friday, down 1.19% for the week, as concerns about the Brexit vote intensified. On Wednesday, the U.S. Federal Reserve decided, as expected, to keep the interest rate unchanged following its two-day FOMC meeting, but Fed Chair Janet Yellen insisted during the press conference after the meeting that a rate hike is coming in July. Steve Grasso, Director of Institutional Sales at Stuart Frankel & Co., told CNBC that Yellen was just blah-blah talking. Wall Street thinks that the Fed funds rate could eventually go negative if the U.S. economy continues to head south.

Here was Yellen’s take on negative rates after the FOMC meeting in September 2015, "We found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools, and (a negative rate) would be something that we would evaluate in that kind of context."

Ahead of the FOMC meeting, the Commerce Department said on Tuesday that U.S. retail sales increased 0.5% last month after surging 1.3% in April, beating expectations of a 0.3% gain. The Manufacturing Business Outlook Survey by the Federal Reserve Bank of Philadelphia, also known as the Philly Fed, on Thursday showed the manufacturing index ticked higher in June, but the employment index, which remained negative for the sixth consecutive month, plunged from –3.3 in May to –10.9 in June.

The Bank of Japan (BOJ) said on Thursday that it would maintain monetary stimulus, despite that Japan’s consumer prices in April dropped for a second month. The BOJ move sent the yen skyrocketing over 2% on Thursday, to around 103.50 yen to the U.S. dollar, a level has not seen since August 2014. The U.S. dollar index inched down just 0.31% for the week, to close on Friday at 94.34. 

While the BOJ decision came as no big surprise, bond traders bought 10-year U.S. Treasury Notes, pushing the yield on the benchmark 10-year note to its lowest level in nearly four years. The yield spread between the 10-year and 2-year U.S. Treasury Notes tumbled over 4%, to close at 0.87 percentage points on Thursday, a level not seen since late 2007. 

Just two days after the Federal Reserve decided to leave the Fed Funds rate unchanged on concerns about slowing jobs growth, St. Louis Fed President Jim Bullard, a voting member of the FOMC, shocked the financial markets on Friday by saying that low growth and a very low fed funds rate, of just 63 basis points, will likely remain in place through 2018. That is a major policy shift since Mr. Bullard told CNBC in late May that a U.S. Federal Reserve rate hike in June or July wasn't set in stone, but labor data suggested it was time to pull the trigger.

The best performing S&P 500 sector for the week was Telecommunication services, up 1.39%. The worst performing sectors for the week were Healthcare and Information technology, which were down 2.09% and 1.95%, respectively. The S&P 500 Biotechnology subsector sold off again, down 3.26% for the week, as the political dark cloud hanging over prescription drug prices remains. 

Presumptive nominees from both parties use their rhetoric against the pharmaceutical and biotechnology industries, while speculators have been using the political noise as a backdrop to take short positions against the sector. Fund managers continue to rotate out of other sectors into Utilities, up 16.73% year-to-date, in anticipation of a U.S. economic downturn.

Since August 2015, the S&P 500 has been positively correlated with the WTI crude oil price. Traders, including algorithmic and high-frequency traders (HFT), may be creating greater profit opportunities by coupling the volatility and price swings in the crude oil futures market with the S&P 500 index. 

The WTI crude oil spot price was unchanged for the week, closing at $48.86 per barrel on Friday, while the Brent crude price was down 2.04% for the week to close at $49.36 per barrel, after mixed weekly crude oil inventory reports.

The Energy Information Administration (EIA) weekly U.S. oil inventory report on Wednesday showed a decline of 900,000 barrels to 531.5 million barrels in the week ending June 10, compared to analysts’ expectations for a drawdown of 2.26 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed U.S. crude inventories surprising increased by 1.52 million barrels.

The EIA said the weekly U.S. crude oil production decreased by 29,000 barrels per day (bpd) for the week ending June 10, 2016, to 8.716 million bpd. Weekly U.S. crude oil output has fallen about 9.3% from the peak level of 9.61 million bpd during the week ending June 6, 2015. Separately, the EIA said on Monday that oil output in the biggest producing shale areas in the U.S. is forecasted to decrease 118,000 bpd in July from June, to 4.723 million bpd, in line with the precipitous fall in oils rigs operating in U.S. shale.

Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 9 from the previous week, for the third straight week, at 337, but still down 79% from the peak number of 1,609 in October 2014. No one knows how many additional bpd will be produced, as there is no direct correlation between crude oil production and the number of rigs. One can imagine that the most productive ones would be brought back into operation first.

From our technical viewpoint, the S&P 500 fell back into the descending channel and below the 50-day moving average. There is a technical support at 2,041, if the index continues to pull back. In order to support the bull's case, the S&P 500 needs to close above 2,120, where a higher-high uptrend can be established.

S&P 500 Summary: +1.33% YTD as of 06/17/16
Barclay Hedge Fund Index: +0.82% YTD 

Outperforming Sectors: Utilities +16.73% YTD, Telecommunication services +16.22% YTD, Energy +11.68% YTD, Materials +8.44% YTD, Consumer staples +5.85% YTD, and Industrials +4.47% YTD.

Underperforming Sectors: Consumer discretionary –0.24% YTD, Information technology –1.42% YTD, Healthcare – 2.81% YTD, and Financials –5.10% YTD.

S&P 500 ANALYSIS