We are still waiting for signs the market rally (off the February lows) is ending. The question is, will these warning signs materialize or not?
Currently, the market is healthy, but not extremely bullish as shown in the below graphic.
Notice the green bars on the bottom of the chart are getting smaller. This is a sign the rally has lost some momentum, but the loss is not significant yet.
Equity markets have been quite volatile the last five trading days, yet the major US indexes are mostly flat for the week.
Economic data remains firm with housing markets showing positive April reports for building permits, housing starts, and existing home sales.
The final point of emphasis for today’s commentary is the Federal Reserve. This past week, investors were caught by surprise when minutes from the April meeting indicated a June rate hike may be on the table. This news was followed by a sharp selloff that could cast a shadow over the market until the Fed meeting held June 14-15 concludes.
Given the current data and our concern for greater volatility this summer heading into the election, we are comfortable holding a more defensive allocation in our managed accounts.
We will continue to monitor the data, and as I always say, “If and when the facts change – so shall we!”