May 22, 2019

Our outlook remains unchanged, with more sideways churn likely through Q2 and into early Q3 before further upside in the second half of the year. Intermediate-term, we expect equity markets to continue trading in a sideways, choppy range through Q2. Why? Weekly momentum indicators require more time to unwind from the overbought levels reached in late Q1. The current intermediate-term pullback will be relatively shallow, similar to what developed in Q2 2016. The risk to our scenario remains that the weekly momentum indicators continue to decline through Q2, well into and possibly through Q3. We continue to recommend buying pullbacks in anticipation of strong 3rd and 4th quarters. The Citi Economic Surprise Index for the G10 appears to be bottoming longer-term, which is one indicator in support of stronger 3rd and 4th quarters. The bottom line is, we expect equity markets to bounce back into month-end but will continue to trade in a choppy fashion.

05-22-2019 SPY

 

Trade-talk fears are the latest potential threat to the market, after FOMC press conferences, earnings revisions, and a slew of mixed economic reports failed to knock the popular averages down. The chart above is a reminder that corrections are normal. The S&P 500 averages 3.4 corrections of at least 5% and 1.1 corrections of at least 10% in a given year.

  • According to the Department of Labor, there were 212,000 claims for unemployment insurance for the week ending on May 11th, a decrease of 16,000 from the previous week's level.
  • The advance rate for insured unemployment claims remained at 1.2% for the week ending on May 4th.
  • The advance number of those receiving unemployment insurance benefits during the week ending on May 4th was 1,660,000, a decrease of 28,000 from the prior week's level, which was revised up by 4,000.

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