Seasonal:
Neutral. June is the last month of NASDAQ’s “Best Eight Months” and the second month of DJIA’s and S&P 500’s “Worst Six Months.” In post-election years, June is second worst for DJIA and third worst for S&P 500. NASDAQ and Russell 2000 have been stronger with average gains of 0.4% and 1.2% respectively.
Fundamental:
Positive. Overall vaccinations are climbing while U.S. cases and deaths are falling. Restrictions are easing and people are slowly returning to work and pre-COVID-19 activities. Weekly initial jobless claims have declined to their lowest level since the pandemic started. U.S. GDP is on the rebound and corporate earnings and guidance were strong triggering many analysts to raise their estimates and targets. Headwinds still exist. Numerous COVID-19 hotspots exist globally, and inflation metrics are running hotter than they have been in over a decade.
Technical:
Topping? DJIA and S&P 500 closed at new all-time highs in May. NASDAQ did not. Rotation from stay-at-home stocks to reopening stocks continues. This has hit the tech-heavy NASDAQ while lending strength to DJIA. Rotation is likely to keep a lid on overall market gains as meaningful and sizable gains typically require broad participation. Marginal new highs are possible, but sideways, range-bound trading by the major indexes is increasingly more likely.
Monetary:
0 – 0.25%. Once again, the Fed is catching flak for expanding its mandate and for being highly accommodative with monetary policy. It really appears to be a situation of the lesser of all evils. Tighten too early or too quickly and risk stalling the economic ascent in order to potentially stave off inflation and return to a more typical rate environment or ensure that the recovery and the overall economy are on firm ground in good health. The start/stop and start/stop and repeat approach taken after the financial crisis of 2008-09 was not highly effective as the recovery was sluggish and intermittent. Inflation is a concern. However, it would appear that the Fed could remove liquidity nearly as quickly as was added. The Fed’s approach is aggressive but appears reasonable and appropriate and likely to succeed.
Psychological:
Improving. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors have slipped to 51.5%. Correction advisors have climbed to 31.7% while Bearish advisors are at 16.8%. Sentiment remains elevated but has retreated from the frothy levels reported in April. The decline in sentiment is likely part seasonal and part technical. Easing bullish sentiment is encouraging, but current levels still warrant caution.
JUN
2021