May Outlook: Relief Rally Gathers Momentum Amid Mixed Market Signals
By: Jeffrey A. Hirsch & Christopher Mistal
|
April 24, 2025
|
|
The market’s bounce off the tariff turmoil is gathering some momentum and that is encouraging. Our Post-Election Year Seasonal Pattern chart below supports the continuation of this relief rally at least for the near term from now through sometime in the early-June to early-August timeframe. The continuing retreat in CBOE Volatility index (VIX) from around 60 back down to under 30 is also supportive.
 
[S&P 500 Post-Election Seasonal Chart]
 
On the positive side of the ledger, our January Indicator Trifecta was 2 out of 3 with the important January Barometer up, but the Santa Claus Rally was down. A positive January Barometer bodes well for the full year, but some significant damage has been done. The Dow’s December Closing Low indicator was breached in mid-January and after initially rallying the Dow fell considerably lower and remains below that level. 
 
In conjunction with the waterfall decline from the February high, February, March and Q1 all logged losses. April is also on track to register a loss with the S&P 500 down -2.3% at today’s close despite the sharp rally this week. With just four days left the Best Six Months (BSM) are down -4.0% for the S&P. When the market does not rally during the bullish season other forces are more powerful and when that season ends those forces may really have their say. Unless this rally continues to climb and puts April, the Best Six Months and the year in the black, the market is expected to struggle through Q3. (More on the implications of Down April and Down BSM below.)
 
Before our Dow and S&P Best Six Months Seasonal MACD Sell Signal Triggered on April 3 several stock and ETF positions were already stopped out. Following the April 3 BSM MACD Sell Signal we closed out the bulk of the Sector ETF portfolio, except Consumer Staples and Utilities and implemented stops on QQQ and IWM, which were subsequently stopped out. At that time, we added the basket of bond ETFs to the Tactical Seasonal Switching Strategy Portfolio. 
 
Last week we recommended some New ETF Trade Ideas that are currently working out well. These included buying back QQQ and IWM, buying more short-term bond ETFs SHV and SGOV on dips, adding to XLP and XLU and picking up the Euro, Yen, Swiss Franc and agriculture ETF DBA as hedges against the weakening U.S. dollar. So, we remain cautiously short-term bullish on stocks, yet diversified and defensive for the Worst Six Months and the current fluid political and geopolitical climate. Our 2025 Annual Forecast shifted April 3 to 50/50 for our base case of 8-12% gains and worst case scenario for flat to negative full-year performance with broad losses across most asset classes.
 
Technical Thrusts & Verify
 
Several short-term bullish technical analysis indicators have been flashing green since the early April plunge on the tariff announcement and historic face-ripping rally a few days later, on the 90-day tariff pause news. The extreme volatility VIX spike above 50 and then retreating back below 30 is one. Another notable one was today’s Zweig Breadth Thrust. Based on the percent of advancing issues on the NYSE vs. the total of advancers plus decliners hitting a very low number and then quickly reversing. These abrupt changes in volatility and market breadth have a solid history of calling market bottoms.
 
While these technical developments are quite constructive the nature of this decline and our other seasonal, post-election year and chart readings are keeping us skeptical. As you can see in the technical chart below of the S&P 500, today’s solid gains have yet to bring us back above the 5500-resistance level. This is the bottom of that failed W-1-2-3 swing bottom we were looking for at the beginning of April. It is also in line with the bottom of the gap from the April 2 tariff announcement to the open the next day on April 3. If we can clear this level that would be constructive and suggest this relief rally can continue. But until we can take back the 200-day moving average and the election gap (orange circle) the market is likely to remain choppy through the summer.
 
[S&P Technical Chart]
 
Down April & Down Best Six Months 
 
Down Best Six Months is an ominous warning. S&P 500 has four days to rally 4.0% for the Best Six Months to turn positive. If the market can’t muster a rally that puts us back above the October 2024 close by the end of April the odds of further weakness increase. Bear markets ensued or continued in 14 of the last 16 down BSM since 1950. Only in 2009 and 2020 were the bear markets already over. But in those two instances the rally off the low was much greater than the current rally. The 6.5% DJIA rally off the 4/8/2025 low pales in comparison to 2009’s 24.8% and 2020’s 30.9% rips. 
 
[Down BSM]
 
Finally, there is the concern that historically bullish April will also end up in the red. In the table below of all the years since 1950 when April was down for S&P 500 the market clearly struggles on average until Q4—though there were a few nasty Q4s in 1973, 1987 and 2000. Highlighted years in gray are most troubling. These are the years like 2025 where there was significant weakness at some point in Q1. 
 
[Down April]
 
Many of these years are down for Q1 as a whole, while a few have a big loss in one or more of the first three months of the year. All of them suffered further significant losses after the down April. Ten of these 12 were down on the year and nine were down substantially. So, we are not out of the woods yet.
 
In light of the these observations, we are comfortable sticking with our defensive Worst Six Months Strategy until we have more clarity in the economic and political arenas. For now, we sit tight and wait for a fatter pitch and more bullish indications.
 
Pulse of the Market
 
Just one day after the announcement of surprisingly broad and larger than expected tariffs, the Seasonal MACD Sell signal for DJIA (and S&P 500) triggered. The initial shock of the tariff announcement saw DJIA drop nearly 4% on April 3 and then another 5.5% the following day. As a result of the brisk decline and only a modest rebound, DJIA’s 50-day moving average has fallen below its 200-day moving average (1) forming a “death cross.” Back in the old days from 1950-1982 it was a respectable bear market indicator, but not as much anymore as major market moves have sped up and recent “death cross” occurrences have tended, on average, to have modest or in some cases no additional losses after them.
 
As of the close on April 23, both the faster and slower moving MACD indicators applied to DJIA are positive (2) in response to the current market rebound. However, with market volatility still elevated, this signal could be just as quickly reversed as the last one that occurred on April 15. Significant technical damage has been done, and it is likely going to take time to repair.
 
Dow Jones Industrials & MACD Chart
 
During April DJIA recorded its second and third Down Friday/Down Monday (DF/DM) occurrences (3) of 2025. The weekly decline for April 4 was DJIA’s eighth worst weekly percent loss (-7.9%) since 1950 and third worst weekly point drop (-3269.04). Declines in that same week for S&P 500 (4) and NASDAQ were even greater with both suffering their worst ever weekly point losses. NASDAQ’s 10% drop was its tenth worst weekly percentage loss ever (5).
 
This week’s gains have bullishly recovered all of the losses from DJIA’s most recent DF/DM but given the headline driven nature of the market and the heightened levels of uncertainty the market has to contend with, more chop and volatility is not out of the question in the near term.
 
Weekly market breadth reached levels of extreme fear during the week ending April 4. Weekly Decliners outnumbered Weekly Advancers (6) by over 14 to 1. The last time this ratio was higher was in March of 2020, at the height of the market’s covid meltdown. Back then the ratio spiked over 15 to 1 in three out of four weeks. The recent spike suggests the lows could be in, at least in the near-term.
 
There was also a corresponding spike in New 52-week Lows (7) the week ending April 11 that supports the possibility that the market low is in. The last time New 52-week Lows were higher was during the last week of September 2022 when that year’s bear market ended for DJIA and then S&P 500 two weeks later. If uncertainty eases, look for Weekly New Lows to continue to retreat and Weekly New Highs to begin building.
 
Short-term Treasury yields continue to hold steady around 4.2% with the Fed still in “wait and see” mode with inflation. The overnight spike in longer-dated Treasury yields that likely contributed to the 90-day tariff pause decision on April 9, does not appear in the weekly data for the 30-year Treasury rate (8). Its yield appears to have reversed course, but it has only risen back to January levels. Stable or trending lower would be a more preferential situation for longer-term rates.
 
Pulse of the Market Table