The Dow Jones Industrial Average (see chart here), the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) are all at record highs. Stocks continue to be on a tear with 3 of the 4 major indexes closing at all time highs on Friday. What’s more the S&P 500 (see chart here) closed above the 3000 mark for the first time ever. The one index that still has work to do before making a new high is the small-cap Russell 2000 (see chart below). I am not exactly sure why the Russell is lagging behind the big boys but if the Russell 2000 gets going then who knows how many more records will fall.
That said, for the first time in a while the Dow Jones and the S&P 500 have both entered into overbought territory which is above the 70 value level of relative strength index also know as the RSI. The Nasdaq Composite is fast approaching overbought conditions as well. The Russell 2000 is no where near overbought. I do expect a bit of a pullback in the coming weeks which would be rather healthy for stocks after such a strong performance. I have never been a fan of buying into record highs although momentum traders would disagree. Another factor to consider is we are heading right into second quarter earnings reporting season. Earnings reporting season could be a catalyst to pause the summer rally especially with the percentage of companies issuing warnings so far (click here)
The tariffs that our administration have imposed is expected to have a negative effect on the top and bottom lines of many U.S. companies. What I will be looking for is how much of an affect these tariffs are having on corporate America. The other side of the coin is if tariffs weigh heavier than what is anticipated, this could be yet another reason for the Federal Reserve to move to cutting interest rates which is the real reason I think we are hitting all time highs. Good luck to all 🙂
~George
