We hope you had a terrific Memorial Day Weekend! Like us, we hope you took some time to reflect on our heroic service members who gave the ultimate sacrifice to let us do what we do here in the great United States of America. We were ready to hear the opening bell this morning, and we hope you were too. The major indexes fell in choppy trading yesterday as traders closed out a rough month that saw the S&P 500 come within just points of official “bear-market” status amid ongoing inflation, rising interest rates, and economic recession fears. The S&P 500 dipped 0.6% to 4,132.15, and the Dow Jones Industrial Average fell 222.84 points, or 0.7%, to close at 32,990.12. The Nasdaq Composite eased 0.4% to 12,081.39 but gave you some interesting intraday moves where the technology-heavy index was up 0.5% at its highs and down 1.6% at its lows. All sectors were in the red today except Consumer Discretionary and Communication Services. Yesterday stocks wrapped up what was also a real doozy of a May in terms of highs to lows. After the big meltdown earlier in the month, the Dow and the S&P 500 finished the month little changed after last week’s major rally. The Nasdaq was still the relative underperformer on the month and lost about 2.1%. This is a month that I will be happy to close the books on. At the start of May, the Federal Reserve hiked interest rates by half a percentage point in a bid to slow down generationally hot inflation. Always remember what the great Martin Zweig said, “Don’t fight the fed.” With this record-high inflation, recession fears have mounted as market participants fear the Fed’s policy tightening will trigger an economic decline. Throw in the continuing war in Ukraine, Covid lockdowns in China, skyrocketing global commodities and continued supply chain challenges and you have yourself a lot for the capital markets to worry about. With all this uncertainty, stocks continued their selloff during the month in record fashion, as the Dow saw its longest weekly losing streak since 1923, falling for eight consecutive weeks. However, last week padded some of the damage as the Dow and the S&P 500 notched their best weekly gains since November 2020. Still, stocks remain well off their highs. The Dow is 10.7% below its record. The S&P 500 is down 14.2%, and the Nasdaq is off by 25.5%. As you have witnessed firsthand, bear markets are difficult to trade because they are inherently volatile and prone to sharp reversals in both directions. While we think long term, we are in a structural correction that may have bottomed last month, we think this market has a lot of correcting to do in “time” if not “price.” That means that in a best-case scenario, we correct the excess of 2020 in trading “sideways” on the longer-term chart as opposed to further down. Further down would imply more correction to be done in price. We do not want that. If we get a sideways consolidation pattern on a weekly and monthly period, we can make money on the long side tactically. Now is one of those times. While the stock market rally did not make any progress yesterday, it did not lose much ground. The Nasdaq found support at its 21-day moving average while the Dow Jones and S&P 500 never got down that far. We think yesterday was just a pause consolidation of last week’s big move up. That should set-up some follow through in our positions in the coming days if we are right.
Best,
Matt
The views expressed are not necessarily the opinion of Cadaret Grant, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.