Momentum Monday – Resilient Market

MarketSmith powers the charts in this video

Considering the current headwinds, the U.S. stock market is holding impressively well. The Fed raised the benchmark interest rate to 5-5.25% and hinted it might be the last hike this year. SPY pulled back to its 50-day moving average. QQQ pulled back to its 20-day moving average. Both bounced strongly on Friday after a much stronger-than-expected jobs report. Employment is a lagging indicator. It seems the market is not thinking that far ahead and considers it as proof that the economy is still vibrant despite 10 rate hikes in 14 months. 

There is a new regional bank going under every week. It turns out they all did the same thing and have huge unrealized losses in long-term Treasuries. The genie is out of the bottle and people are moving their money requiring a 4-5% yield or the perceived safety of the biggest banks. While financials have taken a hit this year, the impact on the overall market has been negligible. This is one resilient market. 

Earnings reports continue to come hot. There’s no earnings and sales growth but everyone is beating the massively lowered analysts’ estimates. Either the analysts are really bad at estimating or the market simply chooses not to care about the lack of growth. It prefers to focus on the potential for future growth 6-9 months down the road. Apple is a good recent example and it represents many other similar cases. They reported 0% earnings growth and a second consecutive quarter of negative sales growth. How is that bullish in an environment of 5%+ inflation? The net result was a breakout and trading less than 5% off its all-time highs. Going up on bad news is bullish, at least in the short-term. 

This year, the so-called “sell in May and go away” hasn’t materialized yet. Plenty of stocks have remained very resilient. The A.I. theme is one of the strongest – NVDA and MSFT are the clear leaders. AMD could be another that joins them. Bitcoin continues to hover near 30k. If it breaks out, it will help stocks like RIOT, MARA, and MSTR bounce higher. Fast food restaurants are crushing estimates and breaking out higher – CMG, WING. Medical device stocks are having one of their best quarters – ISRG, SWAV, LNTH, PROF, etc. Even the biotech sector has staged a massive rally in the past few weeks. As of now, it is a market of stocks that is correcting through sector rotation.

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