The stock market schedule last week kept some traders on edge as some thought the early close Monday was a good reason to extend the weekend. The economic reports seemed to set the tone each day as on Monday the ISM Manufacturing Report was weaker than expected and then Wednesday’s FOMC minutes turned the focus on the next FOMC meeting.
Thursday’s much higher-than-expected ADP report of 497,000 new jobs before the opening spooked traders as the market gapped lower. Most of the markets closed well above the lows and then tried to rebound Friday when the US jobs report showed only a gain of 209,000 jobs. Last hour selling Friday muted the gains for the day.
This left the market nervous heading into this week’s CPI report on Wednesday. It is expected to decline but the jobs data again fueled the debate on whether rates will need to be raised once or twice before the end of the year. Many feel that inflation is still too high.
Only the Dow Jones Transportation Average and the SPDR Gold Trust (GLD
GLD
The growth-heavy Nasdaq 100 was only down 0.9% on the close but still shows an impressive 37.5% gain year-to-date (YTD). The Dow Jones Utility Average lost 0.1% but YTD is down 6.4%.
For the week the NYSE A/D numbers were negative with 1189 issues advancing and 1895 declining. For the week that was not too bad as on Thursday, the declining issues led the advancing issues by a 5.8 to one margin indicating that the selling was heavy.
Last week I wondered how long it would take before the market bears turned bullish. There does not seem to be any change yet in the outlook from the highest-profile bears. The individual investor, according to the American Association of Individual Investors (AAII) survey, has finally turned more positive on their outlook for stocks over the next six months.
In the May 17th survey just 22.9% were bullish but that number rose last week to 46.4%. The bearish % reached a high of 48.9% on March 22nd but now only 24.5% are bearish. These are impressive changes in such a brief period but they are not yet at extreme levels.
Each year I follow the year-end price target of the leading Wall Street strategists that are available by the start of the year. This is not to criticize them as I have said for many years that this is a thankless task that most would like to avoid. Understanding the prevailing market opinions and what has happened in the past can help you become better prepared for the market’s surprises.
As the year progresses these forecasts are often revised and can aid me in the analysis of my technical indicators. The 2017 chart of the Spyder Trust (SPY
PY
SPY
By June 30, 2017, Bloomberg commented that the 2017 target was the “most bearish since 1999”. The strategists raised their targets slightly by June to 2417 which still turned out to be too low as the S&P 500 closed at 2673. This commentary preceded a 10-week sideways period in the S&P 500 before the S&P moved sharply higher until early 2018.
In October 2017, Tom Lee raised his year-end target from 2275 to 2475. In 2017, Mr. Lee was one of the most negative strategists but in 2023 he was one of the few bullish strategists in early 2023.
In 2017, the S&P 500 Advance/Decline line stayed above its WMA for all except one week as it was strong and positive for most of the year. In 2018, the too-low targets for 2017 resulted in too-high forecasts for 2018 as they kept raising their forecasts before the end of December 2017. In early 2018, the bullish % of investors, according to the AAII survey was 55%. This was a warning in early 2018 as the S&P subsequently dropped over 11.7% in just two weeks.
If stocks stay strong until the end of the year it could create a similar situation in 2024 as the too bearish strategists in 2023 may overcompensate in 2024. I hope you will take some time to learn about market history and you will find that it can help you become a better investor and trader.
The current chart of the SPY does not show such a powerful uptrend or strongly trending S&P 500 Advance/Decline line that we observed in 2017. The weekly starc+ band is at $455.36 which gives the market some more room on the upside. There is like to be a correction before the fall.
The weekly S&P 500 A/D line made a new all-time high in June which does mean the S&P should eventually also make a new high. I would expect this to happen before the end of the year.
Some of the market bears are changing their positions as it was reported last week that the massive short position in the S&P 500 is starting to be covered. Short sellers “likely lost $37 Billion” but there is still a record-high short position that should continue to support prices.
Also as expected some are starting to raise their year-end targets as many stock managers were under-invested at the end of the quarter. Last week Tom Lee raised his 2023 target to 4825, the highest of all strategists right now.
He was not alone as Goldman Sach’s “downgraded the odds of a recession” and raised its 4,000 year-end target to 4500. For various reasons, other strategists expect the S&P 500 to be lower, not higher by year-end. I still expect more to raise their targets as the year progresses.
Wednesday’s CPI report is likely to set the tone for the next FOMC meeting as well as the rest of the month. I am closely following the growth/value analysis for new opportunities as I think ETFs and stocks can move even higher.
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