Market at a Glance

Market at a Glance - 5/30/2019

By: Christopher Mistal

May 30, 2019

Psychological: Slipping. According to Investor’s Intelligence Advisors Sentiment survey bulls are at 49.0%. Correction advisors are at 33.7% and Bearish advisors are 17.3%. Bullish advisors exceeded 50% for thirteen weeks straight peaking at 56.4 at the end of April and have been below 50% for the past two readings. This decline in bullish sentiment is likely being driven by recent market declines and the start of the “Worst Six Months.” Declining bullish sentiment is a positive, but it has not yet reached levels typically associated with new buying opportunities.

Fundamental: Reasonably firm. Even though first quarter U.S. GDP was revised down to 3.1% earlier today, it is still above 3% and past estimates. This suggests that there is a reasonable chance that current Q2 estimates are also low. Q1 corporate earnings were also better than widely anticipated. Yes earnings compared to year ago figures were not spectacular, but they are still growing and expected to accelerate later this year and next. Unemployment is also consistently low and stable while wages and productivity are improving. The “sugar high” from tax cuts has ended, but the overall outlook is still looking fair.

Technical: Consolidating? DJIA, S&P 500 and NASDAQ all had great runs from the December lows. S&P 500 and NASDAQ even traded at new all-time highs, DJIA did not. The current pullback could be blamed on a myriad of things, valuations, earnings, trade, geopolitics, “Sell(ing) in May,” etc. Or perhaps it is just a typical May pullback like many of our charts and patterns suggested prior. Nonetheless, early March lows have not been violated by all three indices and selling appears to be abating.

Monetary: 2.25-2.50%. Partial yield curve inversion, slowing growth estimates and below target inflation metrics. That single sentence alone is probably adequate support for a rate cut or two by the Fed. Likely that is exactly what the Fed will do next. The only hurdle is the lingering belief that rates should be higher because they used to be higher in the past.

Seasonal: Neutral. June is the second month of DJIA and S&P 500 “Worst Six Months,” it also is the last month of NASDAQ “Best Eight Months.” Historically a tepid month, June has recorded respectable gains in pre-election years and following down Mays in years with strong starts.