The economy posted a 3.2% gain in the first quarter and as the saying goes, a strong economy equals a strong stock market! Is it any wonder as to why the Nasdaq Composite (see chart here) hit an all-time high on Monday! The same rings true with the S&P 500 (see chart below). The S&P 500 hit an all-time high on Monday as well. Now the Dow Jones Industrial Average (see chart here) has a bit more work to do in order to tap its own record as does the small-cap Russell 2000 (see chart here). However, I am sure the bulls will take 2 out of the 4 major averages setting all time highs. What is also helping the stock market is how the Federal Reserve has taken a cautious approach to raising rates any further. In fact, there are calls out of Washington DC asking the Fed to start lowering rates to stimulate the economy even further. Now I am not so sure that the Fed will accommodate Washington’s request, but I do think it is safe to say that we should not see a rate hike in the near future or maybe not at all for the rest of this year.
One note of caution to me is that with nearly half of corporate America reporting their Q1 earnings so far, we are seeing on average a year over year decline in earnings. There are still 100’s of companies set to report over the coming weeks but if this trend continues, this will be the first year over year decline in corporate earnings in years. I will be keeping an eye on this development.
The technical shape of the aforementioned indexes remain intact. The Dow, Nasdaq, S&P 500 and the Russell 2000 all are trading above their respective key moving averages. However, both the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) have entered into overbought territory according to the relative strength index also know as the RSI. That said, I would not be surprised to see at the very least some consolidation or an outright healthy pullback. Good luck to all 🙂