6/28/2016: Dow 21454.61 | S&P 2440.69 | NASDAQ 6234.41 | Russell 2K 1425.27 | NYSE 11812.80 | Value Line Arith 5563.70
Psychological: Frothy. According to the most recent
Investors Intelligence Advisors Sentiment survey bulls climbed to 54.9% from 51.5% in the prior week, bears slipped to 18.6% and correction declined to 26.5%. Considering DJIA, S&P 500 and Russell 2000 have effectively gone nowhere since March 1, a few percentage points in nearly four months for S&P 500, bullish sentiment this high is excessive and arguably rather overoptimistic. At some point, the market’s patience is likely to runout while it waits for tax reform, healthcare overhaul, defense and infrastructure spending and many other campaign promises that have not yet been delivered.
Fundamental: Fuzzy. Atlanta Fed’s GDPNow model keeps lowering its GDP forecast for Q2 and the IMF also lowered its growth forecast for the U.S. for 2017 and 2018. Healthcare overhaul has not gotten done which is calling into question whether or not other major policy initiatives will ever get done. Not to mention the need for a Federal budget and the looming Federal debt ceiling. It would appear there is a larger than usual number of things Congress could mess up this year.
Technical: Topping? Weekly NYSE Advance/Decline negative three weeks in a row, new NYSE Weekly Highs fading and new NYSE Weekly Lows expanding and major indexes taking turns at fractional new all-time highs all adds you to a stalled rally at best or a significant top at worst. NASDAQ led the charge higher since March 1, but it has faltered and is on the verge of closing below its 50-day moving average. If NASDAQ fails to find support, it will likely pull the rest of the market lower with it.
Monetary: 1.00-1.25%. At its June meeting, the Fed went ahead and raised its key lending rate. Based upon CME Group’s FedWatch Tool, the Fed is most likely done increasing rates until December. Have they sufficiently reloaded for the next economic downturn? Probably not, but within historical context, they are still highly accommodative leaving room for further improvement in the labor market and perhaps even nudging inflation a bit higher. The flattening yield curve is worth keeping an eye on.
Seasonal: Neutral. 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. In post-election years, July is #1 for DJIA and S&P 500 and #2 NASDAQ, Russell 1000 & 2000, but many of the past “hot” post-election-year Julys were preceded by weak Junes. This has not been the case this year.