It’s been a good week for stocks, and if the debt ceiling issue is resolved without too much trouble, we could see some more upside. It goes without saying, it’s a lot easier to make money when the S&P 500 (SPY) is up, even if our portfolio is less correlated than the large broad-market companies. However, we are still making additional portfolio changes this week to prepare ourselves for what’s to come. Read on for my latest on current market conditions and where I think they will go next….
(Please enjoy this updated version of my weekly commentary originally published in the POWR Stocks Under $10 Newsletter.)
As I mentioned above, stocks look a lot stronger this week. While the debt ceiling is the primary issue for investors, odds are that it will be resolved before any type of actual default occurs.
Once the self-drama has passed us, the focus will return to inflation, Fed meetings, and other economic news.
Summer tends to be slow in terms of market movement. However, this year could be a little different as the summer FOMC meetings will be closely watched.
As I said last week, I prefer a bigger picture of market conditions rather than looking at daily moves.
The S&P 500 (SPY) has had a nice week so far, but as you can see in the chart above, we are not even 2 standard deviations from the 50-day moving average.
Obviously, this does not mean that the rally will continue. With that said, we also haven’t seen a sharp enough move to necessarily expect a bout of profit-taking ahead of the weekend.
The economy and earnings news have been fairly quiet this week. Walmart (WMT) reported stronger-than-expected results, which has led to increased earnings and revenue guidance for the year.
Retail sales numbers were also strong for the month of April. Overall, the consumer spending picture continues to look positive.
With the economy remaining resilient, it is difficult to say whether the Fed will raise interest rates at the next meeting (in June).
The market is 65% sure they won’t raise interest rates, but that could change very quickly based on new economic data.
I don’t think we need another quarter-point rate hike, but the Fed generally isn’t asking for my opinion.
A brush with defaults (debt ceiling stuff) could change the Fed’s mind, but again, I don’t expect an actual default.
A drop in the price of gold below $2,000/oz, as shown above, could be a sign that investors are less concerned about investing in safe havens.
The VIX (Market Volatility Index) also continues its slow downward trend. The VIX will see short-term gains based on one-off news events.
However, its general trend in most years will be downward or sideways (depending on what kind of year we had earlier).
You can see that the VIX is close to 16. That roughly means a 1% daily move in the stock. Under 15 is usually considered a low volatility environment. We might get there this summer, assuming nothing crazy happens with the debt ceiling or the Fed.
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all the best!
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter
SPY stock. Year-to-date, SPY has gained 10.04% against the % gain in the benchmark S&P 500 over the same period.
About the Author: Jay Solov
Jay is the Principal Options Portfolio Manager at Investors Alley. He is the editor of Options Floor Trader PRO, an investment advisor that offers you professional options trading strategies. Jay was formerly a professional options market maker on the CBOE Hall and has been trading options for over two decades.
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