It has been a great week for stocks and if the debt ceiling issue is resolved without an excessive amount of trouble, we are able to expect more rallying. It’s obvious, but it surely’s much easier to earn cash when the S&P 500 (SPY) is rising, even when our portfolio is less correlated to the broad market than large caps. That said, we have made some additional changes to the portfolio this week to organize for what lies ahead. Read on for my latest tackle current market conditions and where I believe it’s headed next….
(Please use this updated version of my weekly commentary originally published in The POWR Newsletter Shares under $10).
As mentioned above, stocks look much stronger this week. While the debt ceiling is a serious concern for investors, it’s prone to be resolved before any actual default occurs.
Once the self-inflicted drama wears off, attention will return to inflation, Fed meetings and other economic news.
Summer tends to decelerate in terms of market motion. Nevertheless, this 12 months could also be a bit different as the summer FOMC meetings will probably be closely watched.
As I said last week, I prefer the larger picture of market conditions fairly than day-to-day movements.
S&P 500 (SPY) has had a fairly good week to date, but as you may see from the chart above, we are usually not even 2 standard deviations from the 50-day moving average.
After all, this doesn’t mean that the rally will proceed. Nevertheless, we also have not seen a move up sharp enough to necessarily expect a profit-taking before the weekend.
The economic and earnings news has been pretty calm this week. Walmart (WMT) posted better-than-expected results, raising its profit and revenue forecasts for the 12 months.
Retail sales figures were also solid for April. Overall, the picture of consumer spending stays positive.
As the economy stays resilient, it is difficult to say whether the Fed will raise rates of interest at its next meeting (in June).
The market is about 65% sure that they are going to not raise rates, but that would change quite quickly based on latest economic data.
I do not think we want one other quarter-point hike, but the Fed generally doesn’t ask me.
A default ridge (the debt ceiling issue) may change the Fed’s mind, but again, I do not expect a default to truly occur.
The drop in the price of gold below $2,000 an oz, seen above, could also be an indication that investors are less concerned about investing in a refuge.
The VIX (market volatility index) also continues its slow downward trend. The VIX can have short-term spikes based on one-off news events.
Nevertheless, its general direction will probably be downwards or sideways in most years (depending on what 12 months we had before).
You possibly can see that the VIX is approaching 16. This implies about 1% of every day movement in stocks. People under the age of 15 are frequently considered a low volatility environment. We will achieve that this summer, assuming nothing crazy happens with the debt ceiling or the Fed.
What to do next?
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All the best!
Jay Soloff
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares. 12 months thus far, the SPY has gained 10.04%, in comparison with the percentage gain of the S&P 500 index over the same period.
About the Creator: Jay Soloff
Jay is the lead options portfolio manager at Investors Alley. He’s an editor Floor Trader PRO options, investment advice offering skilled options trading strategies. Jay was previously knowledgeable options market maker with CBOE and has been trading options for over 20 years.
Post Bulls in the lead again? first appeared on StockNews.com