A Seventh Consecutive Weekly Gain — But Just Barely
The S&P 500 eked out its seventh weekly gain in a row, but the index’s thin 0.2% rise marked a sharp departure from the big increases seen in the preceding weeks. The Nasdaq recorded a fractional weekly decline after stocks rallied on Thursday only to retreat on Friday.
A large-cap growth index outperformed its value counterpart for the sixth week out of the past seven, marking a shift from value’s run of outperformance earlier this year. At the market capitalization level, small-cap stocks lagged in the latest week, with a small-cap benchmark falling 2.3%.
Within the S&P 500, which closed at a record high on Thursday before pulling back Friday, the energy sector advanced the most, while consumer staples and information technology also posted gains. Consumer discretionary, real estate, and materials led declines.
Despite a near 10% correction in March and ongoing uncertainty around the Iran war and oil prices, stocks are back near all-time highs. The S&P 500 is up 8.22% this year and up a stellar 17% since the March 30th lows, while the Nasdaq Composite is ahead 12.84%.
Investors may be wondering why stock markets have been rising despite higher oil prices, elevated inflation, and geopolitical uncertainty.
The answer lies in the resilience of earnings and the momentum of AI-driven demand. But that resilience may now be getting tested.
Should You “Sell in May and Go Away”?
There is an old adage that says “Sell in May and go away.” While it does not hold every year, there is historical evidence suggesting that the May through September period has lower returns on average than the October through April period. Since 1980, average returns in the May through October period have been about 4.6%, while returns in the November through April timeframe were about 8.4% on average.
This year in particular, we have seen a strong rally since the March lows, and the odds of a pause, a period of sideways movement, or possibly a substantial pullback and retest in stock markets could be rising as we head into the summer months.
My Technical Read: Be Vigilant and Tighten Your Stops
Despite the appearance of supporting fundamentals, the recent divergences seen in the indices and underlying technicals are serving as warnings of potential trouble ahead this summer.
My advice to traders is to be very vigilant in the days ahead, pay close attention to technical support levels, and tighten stops as protection.
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