With so many ‘this is good, but this is bad’ data points out there, it’s difficult to make heads or tails of this market. Bull or bear? Maybe the answer is neither… for now.
The interesting thing that’s been going on, really since Janet Yellen stepped down as FOMC chair, is that volatility — in general — spiked.
Intra-day volatility has remained pretty high. But week-to-week, it seems like the swings are starting to normalize somewhat. Could it be as simple as the markets getting used to Jerome Powell at the FOMC now — and realizing there has not been a significant policy shift nor a radical departure in communication style from the Fed? And if so, is there really that much of a reason to expect the bears to drag this thing down much further?
If the market is primarily concerned with the cost of capital, it seems the corporate earnings picture is proving that the incremental rate hikes are yet to have a significant impact on things. And the tax cuts are still just being realized in the system. So… geopolitics… which haven’t been a significant influencer of the markets (or even volatility for that matter) for the past several years, are all the sudden the big concern for the markets? Don’t seem to jive with how the markets have behaved the last few years.
Seems more like the markets have to decide whether or not the ‘peak earnings’ theory throw out there by CAT is the real question. And so far, the answer appears to be no. So apparently it’s not what have you done for me lately, but what are you going to do for me next, that the market is looking for.
On last week’s conference call we discussed the pennant pattern the S&P500 has been forming through most of 2018. This week the number to watch is 2688. A close above this level for the week could be the start of a break-out that has this market re-test the 2018 highs published in January (fun stuff). A close below the 200-day moving average (currently 2611, but call support 2600) would be a break-out to the other side, and signal a move lower.
We’ll see if this week signals a ‘sell in May and go away’ event, or if the old wive’s tales or the markets are nothing but baloney. Have a great week!
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