The S&P 500 gained 1.88% this week with Friday's close at 5,911.69.
The index opened the week flying to the upside, gaining 2.05% to kick off the week on Tuesday before consolidating the remainder of the week. This week recorded as an "inside week", or a calendar week with a lower high and higher low than the prior trading week. "Inside weeks" traditionally stand for indecision, hesitation and uncertainty across the collective actions of market participants.
However, given the context of the past two months where the S&P 500 has increased more than 1,000 points from early April's low at 4,835.04, this week's upside consolidation, especially when following last week's pullback, is a healthy combination in our view. Think of the move higher from early April into mid-May as the equivalent of us running a sub-five-minute mile - we're going to need some rest afterward before we can start our next sprint. Recent consolidation from mid-May is the market's way of taking a rest.
In last week's Update we noted how last Friday's low saw the S&P 500 find "support" at the 100- and 200-day simple moving averages. We wrote:
"In terms of price action, at Friday's low we kissed both our 100-day and 200-day simple moving averages (100MA, 200MA), which both sit around ~5,770. The S&P 500 found some buying interest into Friday's close after trading down to these moving averages, so perhaps that's a small tell into the idea that participants will be back to buying 'em over the week ahead."
This technical picture now illustrates "support" at the 100MA and 200MA (shaded blue circle on the chart below) which is a net positive moving forward for the price of the S&P 500. If the first three months and some change were marked with a "sell the rip" mentality, the last two months have seen a roaring return of the "buy the dip" mindset.
As we discussed last week, we believe that a retest of our all-time highs in the ~6,100s is the main event in the on-deck circle.
Whether that comes in June or July is anyone's guess, and the index can certainly use a bit more of a breather, but we have conviction in the idea that this retest will occur and we believe it's most likely that we'll receive a passing grade too.
Fundamentally, the volatility we've seen over the last few months was mostly a derivative of market participants "correcting" their assessment of the forward-looking state of the economy, specifically whether or not the economy would head into recession here in 2025 and the severity of any said recession. The state of the economy is the dominant variable re: corporate profitability, hence why stock prices are sensitive to the forward-looking rate of change of the economy. With the luxury of hindsight, we can now call the turmoil the last few months a "growth scare", and a damn good one at that, but it appears highly unlikely that we'll see a full-blown recession here in 2025.
Whether the economy's resilience can be attributed to the arsonists now extinguishing the very flames they created (the TACO meme is a much funnier way to describe it), or fiscal policy providing a "big beautiful bill" (click here), continued disinflation (click here), a Fed that will grow accommodative (click here), a strong and resilient consumer (click here), or the fact that companies are doing better than expected (click here) is irrelevant in our view. The data, as of today, is pointing toward no recession here in 2025 (click here) and we think that's probably the best explanation as to why the S&P 500 has left a gigantic "V" bottom on the chart.
Regarding market internals, the month of May can be described as the revenge of the MAGS (click here) with the "Magnificent 7" surging 13.83% for the month, more than twice the return of the S&P 500 itself. Nvidia alone gained nearly 40% in May, and just reported strong earnings on Wednesday (click here). The S&P 500 itself outpaced the S&P 500 Equal Weight Index by nearly 2% in May, so the "market" is being carried by its biggest and best of players at the moment. This isn't necessarily a bad thing, but we'd like to see the "market" find broader strength here in June. For example, only 255 stocks within the S&P 500 closed Friday above their 200-day simple moving average. During strong bull markets this figure is well above the 300 level, so we'd like to see expansion back into the ~300s in June.
Circling over to the bond market, bonds took it on the chin in May with the iShares 20+ Year Treasury Bond Index Fund (TLT) falling -3.21% and the yield on a 30-year Treasury bond (UST30Y) adding 25 basis points and finishing the month at 4.93%, its highest monthly close since October 2023. The sheer fact that the S&P 500 couldn't have cared less about rising interest rates in May is definitely a curious sign.
There are a few ways to look at this. Perhaps market participants in the equity space have conviction in the idea of bond prices, collectively, being near a bottom and thus there's no cause for concern with UST30Y flirting with breaking out above the 5% level. By contrast, perhaps market participants in the equity space are complacent to the risk and probability of UST30Y breaking out above the 5% level. Jamie Dimon believes this to be the case, he believes the "bond vigilantes" are back and we are "going to see a crack in the bond market" (click here). If Jamie's correct, that would be a curveball to our bullish thesis for the S&P 500. If equity market participants are correct, and are not being complacent, the S&P 500 will have another upside catalyst via UST30Y descending back down toward the ~4% level over the back half of 2025.
TLT has always found "support" in the ~$84 price region, except for one brief trade down sub-$80 in October 2023.
As for the week ahead, we're on to June! Consecutive "inside weeks" aren't the norm, so it's incredibly likely that the S&P 500 will trade above 5,943.13 or below 5,843.66, or even both this week! There's a ton of Fedspeak and economic data coming forward this week, with the jobs report on Friday. We'd love to see the month of June get off to a strong start and see the S&P 500 back in the 6,000s. Fingers crossed!
S&P 500 Primary Trend - Up
The S&P 500 closed the month of May on Friday recording a gain of 6.15%. All things considered, we view the price action in May as very constructive and another sign of "accumulation".
As a former 400m runner, the start to 2025 is analogous to running a terrible opening 200m. In a "bear market", and given the advance since the April low, you would expect to see the S&P 500 struggle to win the race after falling so far behind early in the race. Instead, the S&P 500 found its stride and came roaring back to put itself in position to compete for a victory. Buying interest has overwhelmed selling pressure, and the index has gained a massive 18.64% from April's closing low into May's monthly close. There wasn't anything close to "sell in May and go away" this year...
Our work now takes the S&P 500's primary trend out of "reverse" and lands it back in "drive".
Long-term investors are now best served investing as if the best is yet to come while being prepared in the event the worst is actually still right around the corner. While individual attributes and preferences matter, the majority of investors are best served having stocks as the largest asset class across their asset allocation and incorporating Treasury bills (or municipal bonds) and precious metals to extract the benefits of "diversification".
The month of May also brought an end to our three-month losing streak. This marks a five-month pattern of monthly returns as: up, down, down, down, up. What's interesting is when the S&P 500 ends a three-month losing streak with a bang, i.e., the index gains 5% or more in month four (the monthly advance that ends the three-month losing streak) the S&P 500 has been up, up and away.
We've seen this pattern 10 prior times since 1950, May 2025 marks the eleventh instance, but in all 10 prior instances the S&P 500 closed higher one year later.
As always, we can't use the past to consistently predict the future, the game's just not that easy.
However, the point of any analysis is to help an investor make an informed decision, it's not to predict the underlying price of an asset. The adults in the room know predicting the price of an underlying asset is an exercise in futility.
At the moment, perhaps the biggest impact the tables above can have for long-term investors is to help them stay the course with their long-term investing plan.
It's imperative long-term investors do not let the fear of striking out keep them from playing their game. Given the chaos across the world at the moment, it's easy for someone to want to deviate from their long-term investing plan. It's easy to understand why many want to sell it all and move to cash. It's easy to feel like "we're doomed".
However, the tables above illustrate why that could be a costly mistake, because there's a ton of precedent that suggests the price of the S&P 500 will trend higher over the forward one year and climb the proverbial "wall of worry". If long-term investors adhere to their investment plan, they'll likely be rewarded. There will be challenging times, there always are, but where there is no risk there is no reward!
Happy Sunday!
