The risk-on rally remains intact, but deteriorating market breadth, concentration in technology stocks, and bearish banking sector signals suggest growing correction risks for June.
Key takeaways
- Bearish RSI divergence suggests the S&P 500 rally may be overstretched and vulnerable to a corrective pullback.
- Rising expectations of a hawkish Fed and a bear-flattening yield curve are weighing on JPMorgan Chase and the broader banking sector.
- EUR/USD remains supported above key channel support despite rising expectations of a more hawkish Fed.
The 9-week rally in the US stock market has been led by and heavily concentrated on technology and AI-related shares, highlighting growing concentration risk beneath the record highs of the S&P 500 and Nasdaq 100.
The broad-based US Technology Select Sector SPDR exchange-traded fund (ETF) recorded a whopping 53% gain from 30 March 2026 to 1 June 2026, surpassing the other 10 sectors by a wide margin (see Fig. 1).
Fig. 1: S&P 500 and 11 SPDR Sectors ETFs performances from 30 Mar 2026 to 1 Jun 2026 (Source: MacroMicro). The information presented is historical information and past performance is not indicative of future performance.
The highly concentrated positive returns from US technology and AI-related shares have led to weak market breadth in the S&P 500.
The percentage of S&P 500 component stocks trading above their respective 20-day and 50-day moving averages has declined since 17 April 2026, from 79% to 46% and 60% to 51%, respectively, as of 1 June 2026 (see Fig. 2).
Fig. 2: Percentage of S&P 500 component stocks trading above 20-day, 50-day and 200-day moving averages as of 1 Jun 2026 (Source: TradingView). The information presented is historical information and past performance is not indicative of future performance
These lacklustre market breadth readings and narrow leadership in technology and AI-related shares increase the potential risk of a medium-term (multi-week) corrective decline in the US stock market.
S&P 500 reached an overbought condition, with a bearish divergence signal
Fig. 3: US S&P 500 CFD medium-term trend as of 2 Jun 2026 (Source: TradingView). The information presented is historical information and past performance is not indicative of future performance.
The 20% rally seen in the S&P 500 CFD (a proxy for the S&P 500 E-mini futures) from the 31 March 2026 low of 6,320 may have reached an overstretched condition, highlighted by a bearish divergence signal on its daily RSI momentum indicator in the overbought region.
These observations suggest a rising risk of a potential impending corrective decline sequence. Watch the 7,690 key medium-term pivotal resistance, and a break below 7,345 may expose the next medium-term support at 7,130 (also the 50-day moving average) (see Fig. 3).
On the other hand, a clearance with a daily close above 7,690 invalidates the corrective decline scenario for the next medium-term resistances to come in at 7,888 (Fibonacci extension) and 8,008/8,085 (Fibonacci extension cluster).
The next asset class we would like to share are linked to rising bets of a hawkish US Federal Reserve.
Based on data from the CME FedWatch tool as of Monday, 1 June 2026, the earlier rate-cut bets of at least a 25-basis-point (bps) cut by the end of 2026 placed by Fed funds futures traders have completely evaporated.
The Fed funds futures market is now pricing in a 61% chance of a 25-bps hike by the Fed at its last FOMC meeting of 2026, on 9 December, to raise the Fed funds rate to 3.75%-4.00% under new Fed Chair Kevin Warsh (see Fig. 4).
Fig. 4: Aggregated FOMC meeting probabilities as of 1 Jun 2026 (Source: CME FedWatch tool). The information presented is historical information and past performance is not indicative of future performance.
Since 17 April 2026, amid rising expectations of a more hawkish Fed, the 2-year US Treasury yield has climbed by 33 basis points (bps), outpacing the 20 bps increase in the longer-term 10-year yield as of 1 June 2026.
As a result, the US Treasury yield curve (10-year minus 2-year) has undergone a bear flattening, where short-term interest rates rise faster than long-term yields. Such a shift typically signals tighter financial conditions, which can weigh on economic growth and pressure bank profitability.
This observation has led to underperformance of the SPDR S&P Bank exchange-traded fund relative to the S&P 500 (see Fig. 5).
Fig. 5: US Treasury yield spread (10-year minus 2-year) medium-term trend with SPDR S&P Bank ETF underperformance,2 Jun 2026 (Source: TradingView). The information presented is historical information and past performance is not indicative of future results
“Death cross” spotted in JPMorgan Chase
Fig. 6: JPMorgan Chase medium-term trend as of 1 Jun 2026 (Source: TradingView). The information presented is historical information and past performance is not indicative of future performance.
The price action of JPMorgan Chase (JPM), a major US bank, has turned bearish, reinforced by a “death cross” signal in which the 20-day moving average has crossed below the longer-term 50-day and 200-day moving averages (see Fig. 6).
In addition, the daily RSI momentum indicator has flashed a bearish momentum condition below the 50 level.
Watch the 315.20 key short-term pivotal resistance, and a break below 294.00 may expose the medium-term support of 280.00.
However, clearance and a daily close above 315.20 invalidate the bearish scenario, with the next medium-term resistance at 325.20, followed by a possible retest of its current all-time high at 334.16.
The next asset class to focus on will be the foreign exchange market.
EUR/USD managed to stage a bounce from its ascending channel support
Fig. 7: EUR/USD medium-term trend as of 2 Jun 2026 (Source: TradingView). The information presented is historical information and past performance is not indicative of future performance.
The recent 2.3% decline in EUR/USD from its 17 April 2026 high to 21 May 2026 stalled at the lower boundary of the medium-term ascending channel in place from the 13 March 2026 low of 1.1411 (see Fig. 7).
Watch the 1.1610/1580 key medium-term pivotal support, and a clearance above 1.1685 intermediate resistance (also close to the 20-day moving average) may see the medium-term resistance coming in at 1.1835.
On the flip side, failure to hold and a daily close below 1.1580 invalidates the recovery scenario and could extend the corrective decline, exposing the next medium-term supports at 1.1535/1510 and 1.1450/1410.
This article and its contents are intended for educational purposes only and should not be considered trading advice.
