With the strength in the market last week, our trend indicators have moved back into the bullish zone. The indicators are lower than they were six weeks ago, suggesting that potential gains will be less than we have seen in the early months of the 2013. Economic data continues to be mixed, but the April jobs number came in better than expected at 165,000 new non-farm payrolls. The unemployment rate fell to 7.5%.
Sell in May?
The data shows slight progress, but not enough to take the Fed out of the equation. This continues to create an “all news is good news” scenario. Combined with the fact that most market pundits are in agreement that we are overdue for a correction, and the fact that the “sell in May” theory is getting a lot of air-time, it’s likely that the market will prove the majority wrong and continue to move higher.
In our 2013 forecast, we said that a retail rotation from bonds to stocks would likely take the market to new highs before setting a top. We are beginning to see the new highs in the Dow and S&P, and like the Ouroboros, new highs feed on themselves creating more new highs. In our forecast, we called for the 1620-1660 range on the S&P 500.
Unfortunately, geopolitical risks are mounting. We have seen a terrorist attack on our home soil in Boston and now Israel has issued airstrikes on Syria in response to one on them. The airstrikes open the possibility of wider issues in the Middle East. Syrian ally Iran warned of a “crushing response.” If the situation in the Middle East escalates, look for market volatility to pick up.
Jeremy Nelson serves as Chief Investment Officer for Pinnacle Trust. You can reach Jeremy by emailing him at email@example.com or by calling our office at 601-957-0323.