May 2023 Upticks

Update

April certainly brought about some surprises, and it’s no stretch to say investing has become a bit more difficult in the last month, despite S&P having risen five of the last eight weeks.  Violent sector rotation has wreaked havoc with positioning, but stock indices remain generally in good shape from a structural perspective, despite some recent slowdown, technically speaking.  April’s last few days of gains helped prices successfully log a positive return of nearly 2%, the best month since January, though trends heading into mid-May show prices largely at the same levels as mid-April nearly a month ago.  Overall, this remains a market where participants have been slow to embrace the rally, given ongoing concerns about the Fed’s plans to cease monetary tightening along with recession fears, earnings issues and ongoing wrangling regarding the Debt ceiling impasse.

Four factors suggest that the months ahead could prove far more difficult than bulls might expect, despite prices having shirked off most concerns, defying gravity since mid-March.  First, seasonality is turning more negative from May into October.  While October 2022 - April 2023 brought about the sweet spot for pre-election year performance, which largely went according to plan, this has now reached conclusion. May tends to have a negative performance record going back 90 years with an average return of (-0.20%)  Second, sentiment has slowly but surely gotten more bullish in recent weeks, as might have been expected given the rally off of the March lows.  Polls like Investors Intelligence and Fear and Greed index have both shown markedly better readings over the last eight weeks since the mid-March lows. 

Third, sector rotation has proven important and meaningful over the last few months.  Over the last 30 days, four of the five leading Equal-weighted Sector ETF’s have been defensive in nature.  Technology’s bounce in April proved short-lived and this sector turned down sharply into late April.  While large-cap growth stocks like $AAPL, $MSFT, $META, $GOOGL certainly have carried the load in recent weeks, Equal-weighted Technology paints a more negative picture, as Equal-weighted Technology's ETF has violated a lengthy uptrend vs. the S&P 500 in absolute terms.

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