Will April Deliver a Record Intra-Month Swing Even as Danger Lurks?
While technical action has improved, it remains to be seen whether the news flow can support an uptrend.
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There are still a few days left, but April may deliver a positive intra-month swing of record-setting size for the S&P 500. In a matter of a couple of weeks, there has been a dramatic shift from impending doom to hopeful optimism.
The most notable aspect of the action has been the extremely strong breadth. This was not a narrow, technology-driven rally. It was a broad rally of historic proportions, with the entire market participating.
Technical action has improved, there are higher levels of bullishness, and momentum traders are increasing their allocations to equities.
It looks pretty good for investors, but the danger of negative news flow is lurking, and that is what the bears are warning us about. There is no shortage of pessimist bears who believe that the market will be unable to escape the problem of a slowing economy and the possibility of stagflation.
The main driving force for the big jump in the past week were delays in the imposition of tariffs and the hope that trade deals will be signed soon. There is hope that President Trump will relent in his tariff push and that the more moderate Treasury Secretary Bessant will push to avoid punitive tariffs while negotiations continue.
What could possibly go wrong? Quite a few things.
While there is talk about progress on trade, the negotiations are still at an early stage, and it is unlikely that any deal will be announced for weeks. The market is very likely to grow impatient with promises if there are no deals and tariffs are not rolled back.
Unfortunately, tariffs are not the only issue. The economy has been showing signs of stress for a while, and some economists believe that a recession has already started. There is a big week of earnings coming up, and company guidance will have a significant impact on how fast the economy may be slowing. Many economists believe that, at this point, the tariff chaos has already pushed the economy over the brink, and it will be unable to avoid a recession.
Investors will also be watching consumer confidence, job openings, GDP, PCE, and April jobs news this week. There is now an increased chance of a Fed rate cut in June, which is helping the market, and poor economic news may be cushioned by further dovishness from the Fed, although the odds of a recession are now better than a coin flip.
The technical action of the indexes and many stocks looks quite good, but the risk of troubling news flow is very high. Keep an eye on the price action. It will warn us when there is bad news that we need to react to.
At the time of publication, Rev Shark had no positions in any securities mentioned.
