Neutral. July is the first month of the second half of the year and has the most bullish record in Q3. Post-election-year Julys rank #1 for DJIA, S&P 500 and NASDAQ. But July is also the first month of NASDAQ’s “Worst Four Months” and early July strength has a tendency to fade around mid-month. NASDAQ’s Mid-Year Rally ends on the close on July 14.
Positive. Employment metrics are broadly positive and trending in favorable directions. Initial weekly claims have bounced off of recent lows, but there has been no major spike. Earnings forecasts are encouraging, and corporate guidance will likely be generally positive as overall vaccination rates in the U.S. continue to climb and restrictions are being eased or dropped all together. Q2 GDP is currently estimated to be 9.7% according to the Atlanta Fed’s GDPNow. Headwinds remain. COVID-19 variants, inflation, supply chain issues and year-over-year comparisons will get tougher as the pandemic induced trough slips further into history.
Rotating? NASDAQ and S&P 500 have closed at new all-time highs this month. DJIA has not. Slipping and stabilizing Treasury yields are lifting growth stocks while interest in value stocks wanes. This appears to be the unwinding of the rotation that took place earlier this year as rates climbed higher. In the time since, major indexes have been essentially trading sideways. Without across the board new all-time highs and a meaningful breakout, more sideways trading with a mild upside bias is likely.
0 – 0.25%. Fed is still highly accommodative and fully committed to supporting the economy, the labor market, and the market; whatever the cost maybe in the long-term. The biggest development out of the most recent meeting was an indication that rate hikes could be coming somewhat sooner. The Fed is now projecting hikes in 2023 instead of 2024.
Borderline Euphoric. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors have risen to 56.5%. Correction advisors have declined to 27.7% while Bearish advisors fell to 15.8%. The outright lack of Bearish advisors is worrisome from a contrary viewpoint. Currently there are the fewest numbers of Bears since 2018. Their numbers have not dwindled to the lows of 2018, just prior to the market correction, but the trend in that direction warrants caution and maintaining seasonally defensive maneuvers taken already or planned to be taken.