Folks, the S&P 500 Index has posted an incredible rally over the past few months...
It's up an incredible 29% from its intraday low of 4,835 on April 7. The index is now up about 6% year to date.
And that's not all...
The equal-weighted Invesco S&P 500 Equal Weight Fund (RSP) is up about 4% this year. That disproves the "bearish" conclusions from analysts who claim that the "Magnificent Seven" mega-cap stocks have accounted for all the gains this year.
It shows that market participation has broadened out during the three-month rally to new highs. Beyond that, internal breadth and price momentum indicators remain strong.
This suggests higher prices for stocks six to 12 months out. But don't expect an easy path there.
The next three months will be difficult for investors and traders alike...
Expect Some Volatility Ahead
Keep in mind that tariff concerns are rearing their head again. Over the weekend, President Donald Trump announced tariff rates of 30% for the European Union and Mexico starting on August 1.
In April, Trump's tariff threats and deadlines created extreme panic in the stock market. But the market greeted his recent announcements with a yawn.
That seems related to the "TACO" sentiment – the popular abbreviation for "Trump always chickens out."
As well all know, the tariff situation keeps evolving. And even though the market didn't have a knee-jerk reaction to the recent news, we still need to take it seriously...
A tariff of this magnitude on Mexican imports would deal a serious blow to the U.S. automobile industry. And Trump dialing back on the tariff rhetoric certainly isn't a guarantee.
Meanwhile, companies will be scrambling to adjust their forward guidance based on the tariff situation. Businesses don't like uncertainty.
The bond market has largely seemed "OK" with the tariff and inflation picture in recent weeks. But like what happened in April, that complacency could turn on a dime.
Four key areas of concern for investors are in focus this week – earnings, inflation, interest rates, and of course tariffs (and the subsequent impact on the U.S. economy).
And we're entering a three-month window of very unfavorable seasonal weakness going into mid-October.
Put simply, there's a disconnect between the trend of economic reports (which have fallen short of expectations recently) and a stock market that has recently been making new highs.
Meanwhile, the market's mood has swung from fear to greed. But everything needs to break well for stocks to continue rising.
That means we're likely to see volatility ahead. Any bad economic news could trigger a series of mini sell-offs.
As regular readers know, I'm still expecting stocks to move higher by the end of the year. But before then, they could have a rocky three months into an October low.
So in the short term, consider taking money off the table when the opportunity arises. And it's a good idea to build up some cash.
Good investing,
Marc Chaikin
