Mid-week market update: The S&P 500 achieved a fresh all-time high yesterday (Tuesday) and it touched 7000 today before retreating. President Trump posted about the event, did he jinx the market?
Probably not. The Fed presented the market with a number of potential surprises. In the end, the Fed decision and the subsequent press conference turned out to be a big yawn. We could have seen political fireworks surrounding the investigation, or the question of whether Powell will remain on the Board after the expiry of his chairmanship, but we didn’t. Nor did we see Trump upstage the FOMC by announcing the selection of a new Fed Chair.
The Fed Catches Up to the Market
The Fed decided to keep rates unchanged. Its assessment of the economy showed improvement from December. Inflation was still elevated, but unemployment seems to be stabilizing and economic growth is recovering.
These conditions are consistent with the relative strength shown by the cyclical industries that I monitor.
The path for stock prices is back to being driven by the economic and earnings outlooks, as interest rates appear to be steady.
Supportive Breadth
An analysis of market breadth is continues to be supportive of the bull case. Net new 52-week highs-lows for the NYSE and NASDAQ are strongly positive. This is a bullish condition.
Similarly, both the S&P 500 and NYSE Advance-Decline Lines made all-time highs. These are also bullish conditions.
These conditions are consistent with the market expectation that the Trump White House will try to keep stimulating the economy well enough to support rising stock prices until the mid-term election. While such a policy stance will eventually resolve in high inflation, which is being discounted by soaring gold and silver prices, that’s mostly a H2 2026 and 2027 investment story.
One warning sign is evidence of elevated sentiment. The II bull-bear spread is at a new cycle high. But sentiment is a warning condition and not an actionable sell signal. The bullish interpretation of such readings is it’s a “good overbought” condition seen during bullish advances.
I interpret sentiment conditions as a warning that the market may be in need of a near-term pullback.
Geopolitical risk (Iran and Venezuela) is rising again. Be prepared to size your trading positions accordingly for possibile volatility.
I will be keeping an eye on possible failures of short-term price momentum as a warning sign, but the intermediate-term trend continues to be bullish.