While the S&P continues chop around it also only stands roughly 1% from new all time highs. The 50-day moving average remains above the 200-day and on a monthly chart, price remains above the 12-month moving average. From a trend standpoint, the markets are still clearly in a long-term uptrend.
If we look at a ratio chart of high yield corporate bonds (JNK) to investment grade corporate bonds (LQD) we can see that it is turning higher and breaking a downtrend. This is favorable for stocks as investors reach for riskier, higher yield debt. We can see from the chart that the LQD has broken to multi-month lows while the JNK has formed a series of higher lows since December. This can be viewed as bullish and a nice tell on the market's view on the overall economy. During periods of stress like we had in October 2014, we can see how investors flocked to the safety of the LQD. We are not seeing that with today's environment. This ties in well with the positive fundamental/macro comments we'll show later.
- While often looked at as somewhat of a lame excuse, we really do believe the harsh winter weather caused much of the weak Q1 growth as depicted by the recently published GDP number. The economy could be primed to rebound over the next couple of quarters with better weather and energy prices still depressed. If true, the market will surely take that into account.
- While some have stepped out on a limb and suggested that the Fed will begin hiking rates in June, most data suggests that an initial rate hike is more likely to come in September or October at the earliest.
- Geopolitics appear to have calmed for the time being. People even seem to be less and less concerned about the possible Greece exit from the Eurozone.
- While talk of the Fed raising rates will continue to be a hot topic for seemingly perpetuity, the data shows that the market does a good job of shrugging off the initial shock of a rate hike when viewed through a longer lens. (Charts and commentary from Russell Investments)