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no way
I was not happy to see so much selling last Friday, the last day of the quarter – following what should have been encouraging inflation news. Arguably, the inflation news was even better than expected. The inflation rate was 2.6% (12 months).
Both bonds and stocks sold off, with a flat week (slightly down), with the S&P 500 down 4 points despite hitting an intraday high early in the session before giving up all the gains. One could argue that 5,500 is resistance and some form of consolidation is necessary, which is normal in the summer.
Diagrams are for illustration and discussion purposes only. Please read the important disclosures at the end of this review.
By comparison, the S&P 500 Equal Weight Index topped the list. The S&P 500 has been underperforming the market-cap-weighted S&P 500 through the end of March. This is because trillion-dollar stocks accounted for a disproportionate share of last quarter’s gains, so they tend to pull the entire index higher, resulting in an uneven move in the index, with the S&P 500 equal-weighted index down 2.5% for the quarter, while the regular S&P 500 is up 3.9%. None of this means there is much downside risk, but some consolidation is likely.
If range-bound trading is the way to go this summer, the S&P 500 should find good support near its 200-day moving average, which closed at 5,270 on Friday. As a rule of thumb, when the index breaks below a rising 200-day moving average (as it did in April), it is a much easier path than breaking below a falling 200-day moving average.
Since it will take a while for the 200-day moving average to turn down, this is still a bull market until proven otherwise, so I would view any pullbacks as pullbacks in the ongoing uptrend.
Earnings and the state of the economy will determine the fate of the market this summer. If second quarter earnings beat expectations, inflation data continues to trend downward, and economic data is solid, then it can only mean one thing – we may see further gains.
French election a yellow flag for Europe
As I write this, the first round of voting in France’s parliamentary elections is underway, but it looks like the right-wing National Rally is in the lead with about a third of the votes in the first round on Sunday. A combination of the center-left, far-left, and Greens are in second place, while President Emmanuel Macron’s party is likely to be in third.
There is another round of voting next weekend, so we won’t know the final results until next week, but anything worse than the European Parliament elections that triggered these snap elections could mean more pressure on Europe’s major stock benchmarks this summer.
Diagrams are for illustration and discussion purposes only. Please read the important disclosures at the end of this review.
If pro-EU parties weaken and euroskeptics gain strength, the euro could trade lower in the current environment. The euro is just 2.5 cents away from its 2023 low of 1.0448 and any trade below that level would mean we have entered another decisive risk-off environment.
Another major factor contributing to the euro’s weakness could be a renewed outbreak of conflict in Ukraine, which, according to best estimates, could begin around six weeks after the Paris Olympics. In the past, escalations in the fighting in Ukraine have been negative for the euro, and the intensity of any escalation is likely to be reflected in the euro exchange rate.
I do not believe this conflict can be resolved diplomatically, and if the only way to end it is on the battlefield, then summer seems to be the best time to end it – that is, right now.
All content above represents the opinions of Ivan Martchev of Navellier & Associates, Inc.
Disclaimer: please Click here Please see the “About” section of the Navellier & Associates profile accompanying this article for important disclosures.
Disclosure: *Navellier may hold securities in one or more of the investment strategies offered to its clients.
Notes to Editors: Summary highlights for this article were selected by Seeking Alpha editors.
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