The stock market is in melt up mode. Going up little by little almost every day whereas the few down days are a bit of a yawn. That is how we got to so far above the March lows and now within striking distance of 4,200 for the S&P 500 (SPY).
4,200 is an important level because it symbolizes the start of the new bull market (20% above the October lows). We faltered at that point in early February with a combination of hawkish Fed rumblings plus emergence of disconcerting developments in the banking sector.
Will this time be different?
Let’s discuss the possibilities of what comes next to set up the best trading plan.
Market Commentary
The perfect starting point for today’s conversation is resharing this important point from my commentary a couple weeks back:
“...the stock market is quite similar to a helium balloon.
Meaning that its natural state is to float higher unless it is being held down by a stronger, negative force that pushes it lower.
Please read that again so it sinks in.
Now if we pull back to the big picture, we can easily appreciate that state of floating higher is true because 85-90% of investment history is framed by bullish conditions where going up is more likely than going down. However, we find this picture to also to be the case during bear markets when negative events are removed.
Consider the start of the year...how the market climbed day by day in January. Perhaps it was because there was really nothing negative to hold stocks down.
Next comes February with an increase in hawkish rhetoric from the Fed which starts to reign in some of the early enthusiasm. Next comes about concerns of a potential banking crisis and stocks get pushed down lower and lower on each wave of negative headlines.
This had stocks giving back all the 2023 gains by mid March with a closing low of 3,855 stocks. Amazingly from there we have gotten served up a +6.6% rally to where we stand today.
Was it because of something positive?
No...just the lack of more negatives to hold down stocks. That’s all it took for them to float higher once again.”
Now let’s consider this helium balloon construct in evaluating the stock price movement so far in April.
Right out of the gate we had some negative economic reports like ISM Manufacturing and ISM Services well under expectations. The ADP Employment report also had some concerned that the jobs market was finally ready to roll over into negative territory. This had stocks selling off a little bit early in April back under 4,100.
Then on Friday the Government Employment Situation report showed inline results with an impressive 236,000 jobs added. This took pressure off the market helium balloon to start floating higher again.
That is not so obvious in the modest gain for the S&P 500 (SPY) this week. Yet it is much more apparent as we look over at the +1.8% result for the more Risk On small caps in the Russell 2000.
The lesson learned by investors over the past year is that it does not pay to sell off whenever you hear about recessionary clouds forming because the actual storm keeps NOT happening. And every drop is followed by a serious rally.
This harkens back to the “Boy Who Cried Wolf”. At this stage investors are wise not being too worried about the potential for the wolf (recession) to come on the scene. This creates an upward bias.
From here I suspect stocks will flirt with 4,200 once again as expectations are low for this earnings season. Typically. those low hurdles are easy to clear pushing markets higher.
Will stocks break above 4,200 a meaningful way unlike the last attempt in February?
I don’t really know. But the lack of bad news is good news for stocks. So if that is what is on the menu, then yes, it increases the odds to move above 4,200 and officially be called a new bull market
HOWEVER, let me share a dose of caution.
What many forget about the “boy who cried wolf” story is that in the end there was indeed a wolf that caused great havoc. But because there were so many false warnings beforehand no one came to the rescue.
The point being is that there still very well could be a recession in the future. And if and when it does come stocks will go lower.
Putting it altogether I would have an upward bias at this time yet sleeping with one eye open in case a recession does actually come together. But until you see real fangs on that recession...I wouldn’t hit the sell button.
What To Do Next?
Discover my balanced portfolio approach for uncertain times. The same approach that has risen +1.61% so far in April even as the S&P 500 slid lower.
This strategy was constructed based upon over 40 years of investing experience to appreciate the unique nature of the current market environment.
Right now, it is neither bullish or bearish. Rather it is confused...volatile...uncertain.
Yet, even in this unattractive setting we can still chart a course to outperformance. Just click the link below to start getting on the right side of the action:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares rose $0.10 (+0.02%) in after-hours trading Tuesday. Year-to-date, SPY has gained 7.54%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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