Technical Stock Market Briefing for Day & Swing Traders – By Harry Boxer, Technical Market Analyst
Stocks backed off last week, likely because of an uptick in interest rates, which continue to be pressed by positive economic momentum and pockets of persistent inflation.
Last week’s somewhat disappointing corporate earnings results weighed on stock market performance for the week.
The major U.S. stock indexes all declined around 0.5% to 1.0%, with the S&P 500 and NASDAQ both snapping a string of five consecutive weekly gains that had lifted the indexes to record highs. The Dow posted its second negative week in a row. U.S. small-cap stocks were flat while large-caps slipped, slightly narrowing large caps’ year-to-date margin of out performance. The small-cap index was essentially unchanged for the week versus a 0.6% decline for the large-caps.
For the month of May, the S&P 500 climbed nearly 5%, rebounding from an April decline and posting its sixth positive month out of the past seven. The NASDAQ led with a gain of almost 7%.
Pullbacks and volatility are normal parts of market fluctuations. However, as we approach the halfway mark for the year, 2024 has proven to be abnormal by most measures. Higher-than-anticipated inflation readings, a jump in interest rates, and a delay in expectations for Fed rate cuts have been noteworthy setbacks.
And yet, the stock market has only endured a relatively small pullback so far.
Year-to-date, the largest pullback has only been 5.5%. In the last 40 years, there have only been four years (1993, 1995, 2017, 2021) in which the maximum intra-year pullback was smaller than that (the best being 1995 and 2017, which never even experienced a 3% drop).
While the intense daily focus on interest rates, inflation, and geopolitical tensions may have felt like it’s been matched by market reactions, daily fluctuations have also been notably modest. The stock market experienced just one day this year with a move of 2% or more (which was an up day). This compares with an average of 21 2% daily moves per year since 2018, a reflection of the modest volatility thus far in 2024.
Technology and growth stocks carried nearly all of the load for 2023’s stock-market gains. And while the focus on the so-called Magnificent 7 and AI-related names has only increased since, it may come as a surprise that tech stocks have actually trailed utilities of late, which we think is reflective of a larger trend: the broadening out of this bull market.
Tech stocks still logged impressive year-over-year earnings growth of 26% in the first quarter, particularly strong given expectations have grown lofty for the sector. But other groups are joining the party, as tech was just one of five sectors (technology, consumer discretionary, communication services, utilities, and financials) that delivered double-digit profit increases in the quarter, compared with just three in the same period in 2023.
It appears that the period directly in front of us may be key in determining whether or not the recent pullback is a sign of the beginning of a deeper retreat and a new bear phase or just a normal fluctuation in stock market activity. We’ll likely have that revealed to us shortly.
In any case, as always, “Trade What You See, Not What You, Think“
Harry Boxer, The Technical Trader
In any case, as always, “Trade What You See, Not What You Think!”
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