The S&P 500 gained 2.92% this week with Friday's close at 5,686.67. Finally, a two-week winning streak, and not just any two-week winning streak either! The index has gained a whopping 7.65% the last two weeks, the strongest two-week advance since the week ending October 28, 2022 - the last time the S&P 500 left a polarizing bottom on the chart...
The index increased every trading day this week and has now increased nine days in a row. Since inception of the SPDR S&P 500 Index Fund (SPY), which dates back to January 22, 1993, this is just the eighth nine-day winning streak for SPY with the other dates being:
05/14/2024
03/10/2010
11/22/2006
04/05/2004
09/11/1995
02/14/1995
01/13/1995
It's a bit ironic that we saw a nine-day winning streak almost exactly one year ago. There's also a bit of history here as the most recent nine-day winning streak is the strongest nine-day winning streak on record for SPY, gaining a whopping 10.29%. In other words, we've seen nine-day winning streaks before, but we've never seen SPY increase nine days in a row and gain more than 10%. Heck, over the last decade the only other time SPY gained more than 10% over a nine-day stretch was the COVID bottom in March/April 2020. So, the price thrust we've witnessed over the last nine days is historic, unprecedented and impressive.
Like the great Wayne Whaley would say about market bottoms, "When the conditions are right, the tape will ignite".
We ignited last Monday, which we only know now with hindsight, because nobody was expecting this after the bell on Monday, April 21 (i.e., nine trading days ago). Say it with us now - the price of the S&P 500 trades beyond the limits of imagination. The last nine trading days are just the latest example.
We weren't all that excited about the price action last week, but the price action this week brought us a pinch of excitement. In last week's Update we wrote:
"As we wrote last week, the S&P 500 hasn't increased two weeks in a row since January, and participants have been "selling the rip" all year long. So, we'll get a pinch of excitement if there is material follow-through to the upside over the week ahead and the S&P 500 manages to finally record a two-week winning streak."
We saw material upside this week and market participants didn't "sell the rip". In fact, arguably the most telling price action this week unfolded on Wednesday, where market participants "bought the dip".
The S&P 500 traded down -2.29% during Wednesday's session, fueled by a weaker than expected GDP report (click here). Yet somehow, someway, the S&P 500 closed Wednesday's session back in positive territory. Behaviorally speaking, this is encouraging as it's a massive change in character from what we've seen throughout most of March and April. We did get a solid inflation read on Wednesday courtesy of the core PCE (click here) and Friday's jobs report was solid (click here), but it was the headline regarding China and U.S. negotiations on the trade front that jolted the S&P 500 higher on Friday, briefly touching the ~5,700 level (click here).
Continuing with the football analogy from last week, the S&P 500 entered the red zone with last week's upside and this week's advance leaves the ball sitting at the 5-yard line. While we remain face-to-face with a massive zone of "resistance", we did hurdle a few important levels this week. The S&P 500 regained its 50-day simple moving average, closing above it each of these last two trading days. The index also closed above the 61.8% Fibonacci retracement level at 5,646.10.
Now, actually getting into the end zone should prove difficult as the 200-day simple moving average sits at 5,746.01 and we have March's swing high in the ~5,780-5,800 region.
Quantitatively, long-term readers and clients know we're a huge fan of "price thrust reversals". Since market bottoms are always a punch and counter-punch scenario, i.e., prices quickly transition from free-fall into a meaningful price thrust higher, we love quantifying any price action that echoes a punch and counter-punch pattern.
As of Friday's close the S&P 500 finished with trailing four-week returns of more than 10% (12.07% to be exact) after falling more than -10% the preceding four weeks (-12.06% to be exact, ironically). Since 1970, this marks just the 10th time we've seen this eight-week punch and counter-punch pattern, but it's the first time we've ever seen this pattern in close proximity to the S&P 500's all-time high weekly close. Of the nine historical instances listed on the table below, all of them occurred with the S&P 500 more than -10% below its all-time high weekly close, whereas on Friday we closed just -8.35% below our all-time high weekly close. More unprecedented price action.
There isn't much that stands out to us as to how the S&P 500 has traded after this sort of price thrust reversal, other than the last instance happening almost exactly five years ago. A lot of what's unfolded the last two months has rhymed with what we saw in 2020 and the last four weeks are more of the same. So, maybe we are up, up and away from here...(if you're reading this, you probably don't believe we can be up, up and away from here - we don't either, and that's why it's more likely than we all think!).
Strength was broad this week, with 10 of the 11 sectors within the S&P 500 rising on the week.
Five sectors gained more than 3%, with the industrials leading the way and adding 4.32%. Earnings continue to be strong in aggregate (click here). The lone sector that finished in the red this week was the energy sector. Crude oil plunged -7.38% this week with Friday's close at $58.38. That's the lowest weekly close for crude since early 2021, and it's a great sign regarding future inflation readings from the Consumer Price Index (assuming crude doesn't suddenly come back to life!).
We have a Fed meeting on deck as they'll announce their decision on interest rates on Wednesday and hold their subsequent press conference. In advance of their decision, bond prices fell this week (interest rates rose) across the curve. The yield on a 10-year United States Treasury bond added seven basis points this week, closing Friday at 4.31%. We're all but certain the Fed will leave interest rates unchanged on Wednesday, but it will be Powell's press conference that's the primary market-moving catalyst.
As of Friday, the Fed is expected to cut rates three times this year (click here), but the only scenario where we see this coming to fruition is if the economy does actually head into recession in the back half of the year. If the hard data heads south, there's no telling how accommodative the Fed will become. But if the economy proves durable (i.e., the labor market continues to sustain), which is a roundabout way of saying things get resolved on the trade-war front and inflation continues to disinflate, then we can't see "why" the Fed would feel compelled to act.
Given the price action across the stock and bond markets of late, with stocks rising and bonds holding steady, it would seem to us that capital markets are discounting the future in a more favorable light than their initial panic reaction in early April.
If we had to guess today, we believe Powell will try to speak to the market in a "hawkish" tone, or a tone that strives to temper the expectations of three rate cuts over the coming seven months.
As for the week ahead, fundamentally it's all about the Fed. Technically, it's all about the S&P 500's nine-day heater! The index traded as if it would never go up again after Trump's "Liberation Day" press conference, and one short month later it's now trading as if it will never go down again. Friday's close leaves the index higher than its close from March 31, meaning it's as if the "Liberation Day" quasi crash never happened at this point. But, it's also a reminder that how the index trades today could be drastically different than how the index trades a few short weeks from now.
There is no "all-clear" sign in the world of forecasting markets, unfortunately. We think there's a really good chance the S&P 500 will trade up to its 200-day simple moving average this week, which currently sits at ~5,746. That should spark trading activity, and thus volatility, and it will be telling...one way or the other. A very exciting week awaits!
S&P 500 Primary Trend - Down
The S&P 500 finished the month of April on Wednesday and it went in the books as a historic and unprecedented month (there's that word again...).
In early April, specifically on April 7, the S&P 500 was down -13.84% for the month. This is like your favorite football team being down 28-0 in the first quarter.
By April 30, the S&P 500 finished the month of April down just -0.76%. This is like your favorite football team losing 42-38, after being down 28-0 in the first quarter.
April's reversal can be quantified too by looking at all calendar months that recorded both a -10% drawdown from the prior month's close and a 10%+ rally into month end (i.e., a monthly close that's 10% or more higher than the monthly low).
There are only nine prior calendar months that match, so it's a crime of small numbers, but it tells a story of near-term turbulence and a smooth flight thereafter. Seven of nine instances saw the S&P 500 trade down by more than -7% at some point over the forward two months, while eight of nine instances saw the S&P 500 close higher 9, 10, 11, and 12 months later. This would support a trade back down toward ~5,200 in May or June before trading up to new all-time highs in the first quarter of 2026.
Despite April's upside reversal, nearly all rules-based, trend-following, absolute momentum, relative momentum and economic models continue to label the primary trend as down, or "bearish". This may seem counterintuitive given the upside we've just witnessed, but it's important to remember that the best of days, weeks and months occur during "bear markets", when volatility reigns supreme.
During downtrends, long-term investors are generally best served with an equity underweight across their portfolios' asset allocation and relying on more active investing methodologies. Whether one chooses to define an equity underweight as a 50% allocation toward stocks/equities or a 10% allocation toward stocks/equities depends on their individual investor attributes. Remember, in the world of investing, returns are expected but risk is guaranteed.
Looking forward, we're now entering the "unfavorable" period of the calendar year. You're going to hear a lot about "sell in May and go away", and while it lacks a sound premise, there is no denying that over the last 70-plus years the S&P 500's annualized returns over the six-month period covering May through October are completely inferior to the six-month period covering November through April. In aggregate, and on a risk adjusted basis, it has been prudent to "sell in May and go away" for as long as most of us have been alive.
To make matters worse, we're coming into this "unfavorable" period with a poor start to the year. As is the case in sports, business and in life, when you get off to a bad start you're far more likely to "lose".
This year (2025) is now the 14th calendar year where the S&P 500 was down by -5% or more through April's monthly close (we ended the month of April down -5.31%). In the prior 13 calendar years, the S&P 500's forward six-month return (i.e., its return during the unfavorable period) was lower 10 times for an average decline of -7.82%. The index's remainder of the year return (i.e., return from April's close through December's close) has also been lower nine times for average declines of -4.49%.
If history is any guide (the biggest "if" we can possibly write given that we live in unprecedented times), the index could struggle digging out of the hole it has buried itself in. Again, anything is possible, there's no such thing as an all-clear sign! Studying market history serves to dispel any bias and help investors find dispassion. Then and only then can a long-term investor invest with maniacal discipline.
As always, the past is not consistently predictive of the future! While history often rhymes, it never truly repeats.
There are always twists and turns, curveballs and knuckleballs that serve to maximize uncertainty about what lies ahead for the price of the S&P 500.
All we're certain of at the moment is uncertainty, and that we're in a marathon, not a sprint.
It's through these lenses where we believe long-term investors are best served allocating their assets as if the worst is yet to come via thorough diversification (owning stocks, bonds and cash) while being prepared in the event the best is truly around the corner. As always, it's discipline for the win!
Happy Sunday!
Steve & Rick