Weekly Market Outlook
By Donn Goodman
MarketGauge Pro
June 05, 2023
Welcome our loyal readers to the weekly Market Outlook as we usher in the new month of June. This is now the beginning of the summer months and what is typically a much more subdued market environment. More on that later.
Hope that this past May was profitable for you in your trading and investment accounts. The month of May continued the bull market trajectory which started back in October 2022 and has now produced positive returns for 4 out of the first 5 months of 2024, a move not seen possible by many of Wall Street’s best and brightest analysts. Recently, many of them have been upping their year-end 2024 stock market price projections.
All of this came with enhanced volatility, as we had been suggesting throughout our last 4-6 weeks of Market Outlooks. There are current headwinds, including softening economic numbers and the prospect of no interest rate cuts by the Federal Reserve until later in the year. The betting pool now has the odds of a cut with the highest probability of arriving in November and 2 weeks after the election so as not to influence voting.
In fact, if the stock market had closed at 2:00 p.m. on Friday instead of at 4:00 p.m. as regularly scheduled, the returns of the market, especially the S&P 500, may have looked very different for the monthly returns. The SPY was down 0.80% before mid-afternoon for the day Friday and did an about-face reversal and closed positive 0.80%, which was a 160 bp reversal. Had earlier in the day returns stuck, the S&P would have been up 3.46% for the month instead of 5.06%.
Big difference. As you will soon see this would have changed some of the positive projections of what happens if the market closes with a 5% or better return for May (instead of 3.4%). See a few charts below illustrating this turnabout late on Friday.
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MarketGauge Strategies
Several of our investment strategies were up big for the month as our quant algo systematic trading continued to uncover trending opportunities in different stocks, sectors and commodity related instruments. The GEMS strategy (comprised of Sector Moderate and Global Macro) ETF model was up over 9% for the month as semiconductors and Metals and Mining including, gold miners and silver all helped contribute to these returns.
Our Large Cap Leaders were up over 6.9% helped by technology (semiconductor) and utility/energy stocks helping pave the way. And then there is our core tactical strategy, Profit Navigator, which had a 7.8% upmove for the month in our risk-managed 2x SPY ETF strategy.
If you would like information on these and other MarketGauge strategies, contact Rob Quinn at Rob@MarketGauge.com. Rob can also share with you what the hypothetical risk-return performance looks like if you blend certain of the MarketGauge strategies together in a Portfolio. If you do not wish to do it yourself, Rob can direct you to those of us that are involved in MG Asset Management and we can set up an account, if you qualify, to have it done for you.
The Bull continues
We have repeated numerous times recently that earnings have been the main driver for the solid performance numbers thus far in 2024. This is in the face of persistent inflation, higher interest rates and signs of a slowing economy. This was beginning to show up in some recent earnings misses that took the Dow Jones down 8 of the last 9 days in the market. See charts on the Dow below:
But on Friday, the Dow came back with a vengeance. Is this a preview of something more positive in June? (don’t count on it). See charts below:
The S&P 500 ended on the highest monthly close EVER. Additionally, a positive sign is that the S&P 500 also ended the month with a BULLISH engulfing candle. See below:
It’s all about the earnings.
As we mentioned during the past couple of weekly Market Outlooks, the markets have behaved positively on the back of expectation earnings beats. (If you did not yet have a chance to read last week’s Market Outlook, here is the link to go back and review it).
The stock market has been enjoying a period of extraordinary success. Investors have been feeling positive, especially as the stock indices make new all-time highs. The Dow recently surpassing the 40,000 milestone only helps fuel confidence.
There are several key factors helping to contribute to this market euphoria. Friday’s PCE inflation core number came in down by 0.1% indicating that inflation is moderating. A resilient and strong economy along with impressive corporate profits, have helped create a positive environment for stock investing in the US.
Michael Arone, chief investment strategist at State Street Global Advisors highlighted this week the unexpected resilience of the economy as a major diving force. Despite predictions of a recession, the economy has continued to expand, fueled by consumer spending and a robust labor market. Arone further pointed out that while GDP growth has slowed slightly, estimates for the coming quarter remain more promising.
This writer remains of the belief that corporate earnings have been the main driver of the Stock Market’s performance as the majority of companies in the Morningstar US Market Index reported positive surprises. However, a recent graph depicts that without the stellar positive earnings of the Magnificent 7, earnings may have been stagnant. See chart below:
Earnings revisions have not existed.
Typically, after the first 2 months into a quarter, analysts begin to revise their earnings expectations. Such has not been the case for 2024. This bodes well going forward.
It’s been mostly about Growth.
So far in 2024, growth stocks have had a sizable advantage over value stocks. The VUG (Vanguard Growth ETF) is up 12.8% versus the VTV (Vanguard Value ETF) up only 7.8%. However, analysts are beginning to believe that growth stock appreciation could slow and value might catch up, especially with the prospect of the Fed lowering rates sometime later this year. Growth stocks, as evidenced in the below NASDAQ cycle chart, are starting to hit some resistance compared to value stocks.
Will the bull market continue?
Use the link below to continue reading about:
- Evidence supporting a continuing bull market
- Election year patterns
- How to know when to take profits
- Update on trends in the housing market
- New and improved charts in BigView
- The Big View bullets
- Keith’s weekly market analysis video
