There are signs that the S&P 500 (SPY) may finally be poised to break above 4,200 and claim the start of a new bull market. Unfortunately, the bears have reason to believe that the worst is still behind us with big economic reports weighing on investor decision-making in early May. Get Steve Reitmeister’s trading plan and top picks in the commentary below.
4,200 for the S&P 500 (the spy) is an important level for the market. Above it lies a new bull market. Below that the Bears can still claim victory.
Indeed, stocks were running up to that battle line once again this week.
Why? And what does that mean for the final bull/bear outcome for the market?
That will be the focus of this week’s commentary.
Market Commentary
On Thursday we learned that Q1 GDP was well below expectations of just +1.1% growth versus expectations of 2.3%. The main reason was that things slowed down significantly in March.
On top of that the Fed’s preferred inflation measure, Personal Consumption Expenditure (PCE), was higher than expected at +4.2% against a previous reading of +3.7%. This should obviously have investors worried about the Fed’s “high rates for a long time” stance as we roll into their next announcement on Wednesday 5/3.
In fact, on Thursday more critics were talking about stagflation, a combination of slower growth and higher inflation. It was an economic malaise in the 1970s that was part of a long secular bear market that didn’t really take off until 1982 when inflation started to come down and the economy became healthy once again.
Sounds like this will be the same for another risk off day. No…think again!
The result was a stunning +2% rally on Thursday with tech thanks to recent earnings success for Microsoft and Meta (Facebook). And then used about another 1% on Friday to close at the highest level since early February.
Happily, only tech shows promise this earnings season. The graphic below shows that just a week ago on 4/20 Wall Street was expecting Q1 earnings to be down -9.75% year over year. And yet now more than half of the companies reporting in the S&P 500 have fallen by more than half to just -4.28%.
Before you start getting too bullish on this positive earnings trend, unfortunately the bad news will show up in the next 2 columns. That’s where the projections for the next 2 quarters get a bit grim. This coincides with the GDP report showing that the softening started in late Q1 and may accelerate.
That’s why the outlook is still weak and why it’s not necessarily time to celebrate the end of a bear market. So at this stage earnings season boost could be given a further touch to the 4,200 line.
The next round of catalysts is awaited for a bullish break set above 4,200 or a return to bearish territory. As for some of the key economic reports on the docket next week:
5/1 ISM Manufacturing
5/3 ISM services, Fed rate decision
5/5 Govt Employment Status
Note that Friday’s Chicago PMI report is considered the best leading indicator of where ISM manufacturing will land. In that case it was still in contraction territory at 48.6. However, on the bright side that is the highest reading since September 2022.
So it can be read directionally that things are improving. We will know on Monday if this is the case for ISM manufacturing as well.
The point is that we are coming to the moment of truth. Do the Bulls have the fuel to break above 4,200 and claim victory? Or is the threat of a recession still great enough to stay under that key level?
It is possible that we will have our answer by the end of next week given the above 3 major reports.
Unfortunately, we may have enough information to be confused for a while and stay under the 4,200 limit.
The trading plan is balanced close to 50% investment. If the break is bullish, keep adding attractive risk on positions to approach 100% invested.
If the break is bearish, reduce the investment amount with a very conservative mix of risk of stocks.
So let the chips fall where they may and we will trade accordingly.
What to do next?
Discover my balanced portfolio approach indefinitely. The same approach that has beaten the S&P 500 by a wide margin so far in April.
The strategy was built on over 40 years of investment experience to appreciate the unique nature of the current market environment.
Right now, it is neither a boom nor a recession. Instead he is confused…unsettled…uncertain.
Yet, even in this unattractive setting we can chart a course of outperformance. Just click the link below to get right into the action:
Steve Reitmeister’s Trading Plan and Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Rayty (pronounced “righty”)
CEO, StockNews.com and Editor, Reitmeister total compensation
SPY shares traded down $0.20 (-0.05%) in after-hours trading on Friday. Year-to-date, the SPY is up 9.17%, the % gain of the benchmark S&P 500 index over the same period.
About the Author: Steve Reitmeister
Steve is better known to StockNews audiences as “Raity”. He is not only the CEO of the firm, but also shares his 40 years of investment experience in the company Reitmeister Total Return Portfolio. Learn more about Ritty’s background, with links to her most recent articles and stock pics.
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