The Economy:
GDP is holding firm with a bias to the upside (currently around 3.3%), Unemployment is at “historical” lows, the jobs “participation” rate continues to climb, inflation is a “non-event”, holding under the Fed’s 2.00% “target” level.
Back in March, the “yield curve” inverted for “one” day. What does this mean? The yield curve is the difference between the yields on longer-term and shorter-term Treasuries. A yield curve inversion happens when long-term yields fall below short-term yields. It has historically been viewed as a reliable indicator of upcoming recessions. As of this writing, the yield curve is “flat”.
Of course, “a one day inversion does not make a trend”, but we are closely monitoring this should it become an issue.
The first quarter earnings season has been “mostly” positive from all aspects with only a few negative reports, so far as reporting comes to an end.
The Market:
The market has been on a parabolic upswing since the day after Christmas recouping all of the losses experienced in the 4th quarter of 2018. Only in the past few days has the market given back some of the advance. Fundamental analysts will point to “outlier” events such as the China negotiations (or lack thereof), the Iran “saber rattling” and other political issues while “we” market technical analysts have watched the market become extremely “over-bought” on a short term basis indicating to us a pull-back was coming and “here it is”. The Dow is down 785 points from the recent high and the S&P 500 is off 92 points. Every year we hear the old adage, “Sell in May, Go away” which does not always work, until it does, so we continue to monitor closely to see how this unfolds.
Currently, we see support for the Dow around the 24800 area and 2875/2700 area for the S&P 500. Of note, the 24800 support level mentioned above is around the opening level last seen at the beginning of 2018.
We believe the long term uptrend remains intact and would only become concerned of a major trend reversal were the S&P 500 pierce the 2600 level in a dramatic way (meaning on heavy downside volume). If this were to transpire, we will implement “defensive” strategies that will include a heavy dose of cash to help protect portfolios and conserve capital.