S&P 500 Makes a New All-Time Excessive By Finish of June? | The Conscious Investor

We have been protecting the indicators of weak spot for shares, from the bearish divergences in March, to the mega-cap development shares breaking by way of their 50-day transferring averages, to even the dramatic enhance in volatility typically related to main market tops. Whereas Q1 was marked by broad market power and loads of new 52-week highs, Q2 has thus far offered a a lot completely different playbook for buyers. Each bulls and bears have felt validated by the current choppiness for the key market averages.

Over the past week, the S&P 500 managed to achieve about 2.7%, regardless of some hotter-than-expected inflation knowledge and a combined bag of earnings for the Magnificent 7 shares. Does this set us up for a lot additional positive factors, and a possible break to new all-time highs, as we proceed by way of the second quarter? Or are we at present experiencing the “useless cat bounce” section with a countertrend transfer to the upside earlier than the good bear market continues?

Psst! Take a look at the January 2024 version of this train, and guess which situation truly performed out!

Right this moment, we’ll lay out 4 potential outcomes for the S&P 500 index. As I share every of those 4 future paths, I will describe the market situations that will probably be concerned, and I will additionally share my estimated likelihood for every situation. And keep in mind, the purpose of this train is threefold:

1. Contemplate all 4 potential future paths for the index, take into consideration what would trigger every situation to unfold when it comes to the macro drivers, and assessment what indicators/patterns/indicators would verify the situation.
2. Resolve which situation you are feeling is most certainly, and why you suppose that is the case. Do not forget to drop me a remark and let me know your vote!
3. Take into consideration how every of the 4 situations would affect your present portfolio. How would you handle danger in every case? How and when would you’re taking motion to adapt to this new actuality?

Let’s begin with essentially the most optimistic situation, involving a transfer to new all-time highs over the subsequent six to eight weeks.

Choice 1: The Very Bullish Situation

When you suppose the April pullback was simply one other buyable dip inside a major bullish pattern, then the Very Bullish Situation is for you. This situation could be made potential provided that the Magnificent 7 shares returned to their former magnificent methods, with shares like AMZN and NVDA following GOOGL in making new all-time highs.

We would must see financial indicators, particularly inflation readings, are available a lot weaker, which might give the Fed confidence to start chopping charges on the June Fed assembly. By the tip of June, we might be speaking in regards to the S&P 500 breaking above 5500, and even 6000 could possibly be on the desk.

Dave’s Vote: 10%

Choice 2: The Mildly Bullish Situation

What if the S&P manages to carry the April low round 4950, however is unable to push to new all-time highs? Situation 2 might imply that value-oriented sectors like industrials and supplies expertise a resurgence, outpacing the expansion management shares from Q1. However since these sectors are a lot decrease weight within the S&P 500, it is simply not sufficient market cap to maneuver the needle on the key benchmarks.

Maybe the remainder of earnings season yields combined outcomes, and by the tip of Q2 we’re left with extra questions than solutions because the Fed is unable to decide to aggressive fee cuts. Rates of interest stay elevated, which creates a serious headwind for development shares.

Dave’s vote: 30%

Choice 3: The Mildly Bearish Situation

Now we get to 2 situations that will imply a extra bearish image emerges within the coming weeks. Situation 3 would imply the S&P 500 is unable to carry the April low round 4950, however we stay above a 38.2% retracement stage round 4820. The Fed both delays its first fee minimize or makes use of language that exudes little confidence in a number of further fee cuts in 2024.

The Magnificent 7 shares could be uneven at greatest, and as they stall out making an attempt to return to new all-time highs, buyers see that as a sign of restricted upside. Gold and gold shares change into the commerce of the day, as buyers are searching for something apart from shares to try to generate constructive returns.

Dave’s vote: 45%

Choice 4: The Tremendous Bearish Situation

You at all times have to incorporate a doomsday situation, and our closing choice would imply the April selloff was certainly just the start. Could and June are marked with decrease lows and decrease highs, and Q2 feels similar to September and October of 2023. The S&P 500 breaks by way of Fibonacci assist round 4820, and even pushes beneath the 200-day transferring common for the primary time because the October 2023 low.

What might trigger this final situation? Financial knowledge might are available approach increased than anticipated, and the Fed might then change into unwilling to chop charges whereas the economic system reveals indicators of renewed power. The market braces for “increased for longer” rates of interest, growth-oriented sectors like expertise and communication companies start the prepared the ground decrease, and defensive sectors bump increased as buyers ignite the “flight for security” commerce.

Dave’s vote: 15%

What chances would you assign to every of those 4 situations? Take a look at the video beneath, after which drop a remark with which situation you choose and why!

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.

The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer and don’t in any approach characterize the views or opinions of every other individual or entity.