5 Things We Are Watching

Here are five things that have caught our attention recently.

  • Various stock markets around the globe are at new highs. “When you see places like Australia, Argentina, Brazil, Greece, Russia, and Switzerland all at or near new highs, you have to wonder if that global recession we keep hearing about is going to happen,” explained LPL Senior Market Strategist Ryan Detrick. “We don’t see how a place like Greece could be as strong as it has been if a global slowdown were truly around the corner.”

  • Market breadth continues to support the bull market, as various advance/decline (A/D) lines are making new highs. In fact, just this week the Dow A/D line, the Global A/D line, the NYSE A/D line, the S&P 100 A/D line, and the S&P 500 A/D line all made new highs. You absolutely can still have a market correction in this scenario, but history tells us that market breadth has peaked 6–12 months ahead of major bear markets. The odds appear high this bull market still has legs.
  • Investors remain quite skeptical. In fact, bears have outnumbered bulls in the American Association of Individual Investors (AAII) Investor Sentiment Survey for five consecutive weeks, the first time that’s happened in more than three years.
  • We continue to hear “the yield curve” is inverted. That’s true about the short end of the curve, but the longer end of the curve is quietly steepening. In fact, the 2-year/10-year yield curve has steepened to its highest point this calendar year, while the 10-year/30-year yield curve is the steepest it has been since November 2018. As our LPL Chart of the Day, “Stocks Have Outperformed After Yield Curve Inversions”,  shows, the S&P 500 Index has actually outperformed the “average year” the previous three times the 2-year/10-year yield curve inverted. For more of our thoughts on the yield curve, please read 11 Things You Need To Know About The Yield Curve.
  • Could the Federal Reserve (Fed) really cut rates next week? Fed fund futures show about a 15% chance of a cut at the June meeting and a 75% probability of a cut at the July meeting. The question is: With the S&P 500 only 2% away from new highs, will the Fed really cut? Although we don’t expect a cut next week, it is worth noting that the Fed previously has cut rates with the S&P 500 at new highs. In fact, it has happened eight times since the mid-1980s, with July 1995 and January 1996 as the most recent examples.

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This Research material was prepared by LPL Financial, LLC.

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