Market at a Glance

Market at a Glance - 4/28/2016

By: Christopher Mistal

April 28, 2016

Psychological: Neutral. According to the most recent Investor’s Intelligence Advisor Sentiment survey, bearish advisors have declined to 20.6%. Correction advisors stand at 35.1% and Bullish advisors are 44.3%. This blend is neither excessively bullish nor bearish. This middle-of-the-road reading could simply be the result of the pace and magnitude of the market’s decline to start the year and the rally that ensued. Numerous bears came out to celebrate in February and have struggled through the rally reluctant to change their view while bulls are only mildly comforted by a rally that has not yet delivered new highs.

Fundamental: Mixed. Aside from the U.S. labor market signs of economic strength are increasingly challenging to find. Housing data has come in below expectations just as Q1 GDP did earlier today. Corporate earnings have been tepid as well with numerous revenue and earnings misses despite the lowered bar of analysts. The consumer was supposed to be enjoying the windfall of lower energy prices and an apparently strong labor market, but that does not seem to be the case. It would seem the extra money is going to higher local and state taxes and/or healthcare expenses. Already there is talk of up to 40% increases in health insurance premiums for 2017. Those 1-2% wage gains and $12 saved on fill ups don’t have much of a chance of being spent on discretionary items when numerous fixed costs are rapidly rising.

Technical: At Resistance. As of today, last year’s all-time highs still stand and the rally off of February’s lows looks like it is beginning to fizzle. MACD and Stochastic indicators applied to DJIA, S&P 500 and NASDAQ are all confirming the loss of upward momentum. Relative strength has also drifted lower. NASDAQ lagged throughout the rally and has been weaker recently. DJIA and S&P 500 golden cross has not delivered on bullish expectations yet. NASDAQ’s chart does not have a golden cross on it.

Monetary: 0.25-0.50%. As widely expected, there was no rate hike at the Fed’s latest meeting. Based upon the CME Groups FedWatch Tool, the closest month with a probability of a rate increase exceeding 50% is September. Considering recent market gains, stabilization in commodity and foreign markets and strength in the U.S. labor market, this could be an overly optimistic outlook. A 0.25% rate hike before elections in November would definitely show the Fed is not as political as everyone thinks (or just confirm it for some).

Seasonal: Neutral. May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” In election years, May ranks 11th for DJIA and S&P 500 with average losses of 0.8% and 0.2% respectively. Small caps and tech fair better mostly due to their “Best Months” lasting until June.