April was a volatile month, starting strong with a run towards 4,200 on the S&P 500 but then pulling back to end virtually right where it started. This was disappointing because (1) April is usually a strong month seasonally and (2) stocks were again rejected at a key resistance level.
The chart below shows how the 4,200 level on S&P 500 (green line) has served to repel previous attempts by the market to rally going all the way back to June 2022. Until stocks can overcome this level of resistance, the upside is limited. Conversely, the 3,800 level on S&P 500 (red line) looks like a solid support line for the market. As long as the S&P 500 remain above 3,800, then the downside is also limited.
While the overall market appears to be stuck in this sideways range, there are big differences in how various sectors are performing. For example, in 2022 the Tech sector was the worst performer, while Energy was the best. Part of what we do regularly is analyze which sectors are doing better or worse and then shift our asset allocation to overweight/underweight those sectors. The chart below shows that over the last 5 weeks, the Tech and Communications sectors have been the clear leaders (Leading quadrant), while Financials and Energy are not doing well (Lagging quadrant).
We are keeping our overall allocation to stocks the same until we get clear direction from the market. But when you get notices of transactions in your accounts that is us making sector adjustments within our stock allocation.
What we are watching right now is the situation in the banking industry, which continues to simmer. While I don’t believe there is a systemic risk to the banking industry like back in 2008/2009, my concern is growing as we see more small and regional banks under pressure.
My level of concern over a failure in Washington to resolve the debt ceiling issue is also increasing. Both parties are responsible for the spending and tax cuts that have contributed to the debt and to now not increase it is unconscionable, but then we are talking about politicians here.
If either of these issues start to deteriorate, I will likely reduce our allocation to stocks because these issues have the potential to cause a significant hit to the financial markets and the economy. We will keep you posted.
I hope this report proves helpful.
May Calendar of Events (comments and additions for future months are always welcome)
- May is National Mental Health awareness month. Nearly 44 million American adults, and millions of children, experience mental health conditions each year. Let’s all get educated on this issue and work towards acceptance and inclusion of people dealing with mental health issues.
May 4th Rich Sanchez’s birthday
May 5th Cinco De Mayo – stay thirsty my friends
May 13th My grandson Miles’s 10th birthday
May 14th Mother’s Day – wishing all mom’s, grandmothers, and great grandmothers a wonderful day. Hopefully soon we can get together to celebrate.
May 20th Armed Forces Day. Dedicated to recognizing those presently serving in our armed forces. Let’s pray they aren’t drawn into service in Ukraine.
May 23rd My daughter Caryn’s birthday
May 29th Memorial Day – let’s remember and give thanks to all who served our country
Jim
Sources: StockCharts.com
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