6/24/2015: Dow 17966.07 | S&P 2108.58 | NASDAQ 5122.41 | Russell 2K 1283.92 | NYSE 11066.14 | Value Line Arith 4872.77
Psychological: Distracted. Summer has officially begun, although many have been enjoying a lighter schedule since Memorial Day, the unofficial start of summer. Family vacations, three (or four) day weekends seem to have become the norm. As a result, the market is just meandering along. Sentiment indicators lean bullish, but not dangerously so.
Investor’s Intelligence latest survey reported bull advisors at 51.6% and bearish advisors at 15.4%. This is well within the range going back until last December. If bullish advisors shot up to or above 60%, then there would be real cause for concern.
Fundamental: Mixed. Corporations and the stock market are doing ok, but Q1 GDP was a disappointment, declining 0.2%. This is being dismissed as an aberration due to weather. Relative stability in the housing and labor markets does tend to support Q1 as being a fluke, at least for now as full-year growth estimates are still predominately in the 2-3% range. Should Q2 GDP disappoint, what can that be blamed on? Let’s blame summer. It was too nice out to work.
Technical: Range bound. Although NASDAQ and Russell 2000 have been able to extend the top end of their respective trading ranges with modest new all-time highs, a meaningful and lasting breakout has yet to materialize. Stochastic, MACD and relative strength indicators applied to NASDAQ and Russell 2000 were stretched when they peaked on Tuesday, but are now heading back into neutral territory just like those applied to DJIA and S&P 500. A meaningful pullback, perhaps back to 200-day moving averages would likely clear the road to new-highs, but until that happens more sideways drift is expected.
Monetary: 0-0.25%. “When will the Fed raise rates?” is still an unanswered question. From recent FOMC statements and individual comments it is apparent the Fed would like to raise rates. The problem is growth is rather pathetic, especially when compared to historical data, and inflation, measured by CPI, is zero on a year-over-year basis. In fact, CPI has been less than or equal to zero for five straight months. Other than the Feds desire to return to something close to normal monetary policy, the argument for withdrawing stimulus is rather weak right now. Sure all forecasts suggest great things are coming, but that has been the case since roughly 2010. Are today’s forecasts any more likely to be accurate than those of the past 5 years?
Seasonal: Bearish. July is best month of the third quarter for the Dow and S&P, but performance for the other two months, August and September, makes comparisons easy. Two recent “hot” Julys in 2009 and 2010 have boosted July’s average gains since 1950 to 1.2% and 1.0% respectively. Such strength inevitability stirs talk of a “summer rally”, but beware the hype, as it has historically been the weakest rally of all seasons (page 72, Stock Trader’s Almanac 2015). Pre-election-year Julys are not so hot, ranking #6 DJIA, #8 S&P 500 and #10 for NASDAQ and Russell 2000.