by Ivan Martchev
June 4, 2024
Once again, stocks did not disappoint on Friday as the S&P 500 Index delivered another rare 100 point plus daily range. In fact, based on futures trading, Friday’s range in both the S&P 500 and the NASDAQ 100 indexes was slightly larger than the volatile day the previous week, after the Nvidia earnings came out, which happened during an all-time high for the U.S. stock market. The difference last week is that the indexes closed on a high note after surging dramatically in the last hour of trading.
Such surges can happen at the end of a month or quarter, so what does it all mean?
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
After seeing three rather uncommon occurrences of this “bearish engulfing pattern” in short order (the one in April produced a 6% draw-down on the S&P 500) on just the sixth trading day after the last such occurrence, the S&P 500 has now produced a bullish engulfing pattern, rising above the highs of the prior two trading days, based on how far the futures and relevant ETFs moved during those trading days.
A bullish engulfing pattern signifies a change of trend, but to the upside this time. They say that, “One day does not a trend make,” so it would be dangerous to extrapolate one day’s action into a reversal, but we could say that a confirmation would come if we rise above the all-time highs from two weeks ago and then head higher. For that to happen, we need Treasury yields to head lower in a more sustained fashion.
It is also possible that we are forming an intermediate-term top and would stay in a trading range over the summer, but presidential election years tend to be strong for stocks, on average, and summers do not always produce trading ranges, so we need to keep an open mind and absorb all the economic and geopolitical data. Then, perhaps the stock market will reveal its intentions.
What Does the Dismal Chicago PMI Tell Us?
On Friday, the Chicago Purchasing Managers Index (dubbed the Chicago PMI) raised some eyebrows, reaching a level of 35.4 – not seen since the depths of the COVID recession in May 2020.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Bears would say this is telling us the economy is sharply deteriorating, while bulls would point out that we have had many mixed readings in multiple indicators pointing to a recession over the last two years and no recession has yet shown up. One can also say that such Chicago PMI readings rarely head much lower than 35 and, before long, they tend to head higher, or they reverse, as was the case in 2020 and 2001. I would tend to read it as “the glass as half full” and point out that recession readings have not yet shown up in many other important indicators and, until they do, it would be premature to look for one.
That means I think there is still time for the Fed to make two interest rate cuts before the November election, but I am not sure if Jerome Powell – who is still hell-bent on proving to the world that he is wiping out the word “transitory” from his vocabulary when it comes to inflation – would see it that way.
We are now in June, a month when the ECB says it will be cutting rates while the Fed is stuck at higher rates. I think the Fed needs to get its act together and not snatch defeat from the jaws of victory as, so far, they appear to have been dealt a rare soft landing in the economy. Inflation is running at 2% or even lower (if it weren’t for owner’s equivalent rent, which is a concept that does not even exist in Europe).
Navellier & Associates owns Nvidia Corp (NVDA), in managed accounts. Ivan Martchev does not own Nvidia Corp (NVDA), personally.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Are We Flirting with World War III While Over-Focusing on Politics?
Income Mail by Bryan Perry
The PCE Data Shows the First Signs of Inflation Cooling
Growth Mail by Gary Alexander
America’s New D-Day: The Day Debt Doubled Growth
Global Mail by Ivan Martchev
The Reversal of the Reversal
Sector Spotlight by Jason Bodner
It’s June. Time For Some “Good Vibrations”
View Full Archive
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Ivan Martchev
INVESTMENT STRATEGIST
Ivan Martchev is an investment strategist with Navellier. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev
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