Market at a Glance

Market at a Glance - 5/26/2022

By: Christopher Mistal

May 26, 2022

Seasonal: Bearish. June is the last month of NASDAQ’s “Best Eight Months.” In all years since 1950, June ranks #11 for DJIA and #9 for S&P 500, but in midterm years like this year, June is the worst month for DJIA and S&P 500 and second worst for NASDAQ. Average losses in midterm-year Junes range from 1.4% by NASDAQ to 1.8% for S&P 500.

Fundamental: Tepid. Q1 GDP was revised lower to a –1.5% annual rate. Inflation is proving sticky, persisting at multi-decade highs. Prices at the pump are at record highs for gas and diesel and continue to trend higher. Supply chain disruptions persist. Corporations are beginning to trim expansion plans and cutback on hiring. So far, employment data has held up, but negative factors are piling up. Surging mortgage rates are dampening the housing market. Russia and Ukraine are at war.

Technical: Bouncing. DJIA, S&P 500 and NASDAQ are all fighting to end their respective multi-week losing streaks. MACD indicator applied to all three has turned positive. Strong resistance is present and is likely to stall any rally. The first resistance to overcome is around 32500 for DJIA, 4100 for S&P 500 and 12500 for NASDAQ. Should these levels be recovered then the descending 50-day moving average becomes the next barrier. Current 50-day moving averages are around DJIA 33650, S&P 500 4280 and NASDAQ 12950.

Monetary: 0.75 – 1.00%. Interest rates are going higher with the Fed widely expected to hike another 0.50% at its next meeting on June 14-15. It is our belief that the market has largely already factored in the increase in rates. The next hurdle the market will need to clear will be the beginning of quantitative tightening (QT). The Fed is expected to begin reducing the size of its balance sheet on June 1. This will begin removing some of the liquidity that was pumped into the financial system through QE that only just ended in early March.

Psychological: Bearish. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 28.2%. Correction advisors are at 31% while Bearish advisors numbered 40.8% as of their May 25 release. Bears have outnumbered bulls for four straight weeks and eight of the last twelve. Sentiment appears bearish, but the outright fear and panic historically observed around major market bottoms still seems to be absent.