Neutral. May is the first month of DJIA and S&P 500 “Worst Six Months.” However, NASDAQ and Russell 2000 strength historically lasts through June. In post-election years, May has been a solid month. DJIA and S&P 500 have both advanced in May for nine straight post-election years.
Supportive. Monetary policy and fiscal policy are aligned and highly supportive. Economic activity is expanding, and unemployment is improving. Corporate earnings have been solid, and forecasts remain generally positive. Some concerns include inflation and longer-term interest rates along with ongoing Covid-19 hotspots.
Topping. DJIA, S&P 500 and NASDAQ closed at new all-time highs in April, but Russell 2000 has not. Our Seasonal Sell Signal has triggered for DJIA and S&P 500. Weekly Advancers have dwindled while Weekly Decliners have been rising. New 52-week Highs appear to have peaked in March and New 52-week Lows have been expanding.
0 – 0.25%. The Fed appears to be focused on ensuring it does not repeat its mistakes of the recent past. By mistakes I mean having to leave rates at zero for nearly a decade and having to use multiple rounds of QE to support the economy following the financial crisis of 2008-2009. This time around the Fed appears determined to get the economy back on track as quickly as possible. The current “at any cost” approach is even willing to tolerate above target levels of inflation in the near-term. Thus far, this approach has worked.
Fading. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors have slipped to 59.2% from 63.7%. Correction advisors have climbed to 24.3% while Bearish advisors are at 16.7%. Sentiment has been elevated for a lengthy period and for valid reason, the market was continuing to rise. Now that the market has paused, and the likelihood of another massive move higher fades so is bullish sentiment.