6/29/2016: Dow 17694.68 | S&P 2070.77 | NASDAQ 4779.25 | Russell 2K 1131.62 | NYSE 10350.53 | Value Line Arith 4586.37
Psychological: Troubled. The polls got it wrong and the market paid too close attention only to be shocked by the actual Brexit vote outcome. And the Fed just pulled a 180. Weekly stats like the most recent
Investor’s Intelligence Advisor Sentiment survey are still essential neutral. Bearish advisors stand at 23.8%, correction advisors are at 34.6% and Bullish advisors are 41.6% as of the most recent report. CBOE Weekly Put/Call ratio may have peaked last week at 0.74. Overall, sentiment is mixed and extreme readings typically seen a significant market bottoms or tops remain absent. In times of elevated uncertainty, it may be best to stick to your strategy. As of today, ours is largely defensive.
Fundamental: Mixed. Arguably the case could be made that fundamentals are actually, in fact, deteriorating. Labor market gains have slowed, the Fed has lowered its growth outlook and the fate of the EU is way up in the air. These negatives are being offset by an improvement in consumer spending which accounts for approximately 70% of the U.S. economy and low interest rates. Will consumer spending and “cheap” money be enough? Probably not.
Technical: Recovering. The Brexit vote outcome hit global markets like a freight train. DJIA, S&P 500 and NASDAQ all suffered their worst day of 2016 last Friday and for NASDAQ it was the worst day since August 2011. However, no new lows were made and the market is bouncing back. DJIA and S&P 500 are on course to reclaim their respective 50-day moving averages today. NASDAQ may do so as well today. Further upside is likely to be limited as heavy resistance exists just below all-time highs.
Monetary: 0.25-0.50%. At the Fed’s last meeting, just before the Brexit vote, it flip-flopped again on interest rates. Previous hawkish statements were sweep away in favor of a far more dovish tone. Lowered growth forecasts, a weakening labor market and inflation well below target were the dominant factors cited. Any future rate increases will be gradual and lower rates are most likely sticking around longer.
Seasonal: Bearish. July is best month of the third quarter for the DJIA and S&P, but performance for the other two months, August and September, makes comparisons easy. 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 2016). Election year Julys rank in the bottom half of all election year months. DJIA: 0.3%, 6th worst; S&P 0.2% 6th worst; NASDAQ (since 1972): -1.3% 2nd worst; Russell 2000 (since 1980): -0.9% 3rd worst.