While the Covid-19 pandemic battered the American economy, the major indexes, the stock market, the small-caps and midcaps have posted impressive recoveries.
Stock Market Seems Bullish but Negative Influences Lurk
Studying the mood of the market is essential to make informed trading decisions. While
the coronavirus lockdown of the economy plunged stocks and indexes to all-time lows,
the rally from that point for the major indexes has been impressive. The market is
turning bullish, and if you have any doubts about this, analysts are quick to point out
Why the Situation Really Seems Bullish
Bullish investors are getting a lot of ammunition these days, but it seems the market is
even stronger than what was mentioned by MarketWatch’s Mark Hulbert. There seems
to be truth in that statement concerning 94% of stocks making up the S&P 500 trading
higher than their 50-day moving average. With 20% control of the total market cap of
the S&P 500 index, these American stocks (Microsoft ($MSFT), Apple ($AAPL),
Amazon ($AMZN), Alphabet ($GOOGL) and Facebook ($FB)) in terms of market
capitalization, have been firing on all cylinders. This concentration is the highest since 1980. Moreover, before the burst of the internet bubble, these stocks only made up 18%.
The Impressive Performance of Midcaps and Small-caps
The indication of the extent of stocks’ participation in the bull market comes from how
midcap and small-cap stocks perform. These stocks have indeed overtaken the large
caps and risen from there lows of March 23. The Russell 2000 index, which is made up
of small-cap and midcap stocks, has returned 43.8% from March 23. While the S&P 500
only managed 36.1% in that period.
Moreover, MarketWatch quoted FactSet data stating that 94% of the S&P 500 stocks
trade higher than their moving average of 50 days. Market Extremes’ president Hayes
Martin, reported that 90% of stocks that were listed on the NYSE trade higher than their
respective 20-day exponential moving averages.
Watching out for Divergences
These indications are considered bullish because the major turning points in the market
came with major market divergences. The high of the market in late September 2018
happened when the S&P 500 was heading for a nearly 20% drop. Though the market
was approaching a new high, less than 10% of the S&P 500 stocks traded higher than
their respective 50-day moving averages. These factors caused Martin to predict a
correction of 8% to 13%.
So, Martin reckons bulls should watch out for any divergences materializing pretty soon.
Things could deteriorate if they materialize. For the moment though, and for the near-
term, the prospects are promising and the strength of the market is pretty impressive.
Consumer Sentiment Recovering
One factor that has been depressing is the drop-in consumer sentiment. But even that
experienced a growth in May, according to a University of Michigan study. May saw
consumer sentiment rise from 71.8 in April to 72.3. In February, the consumer
sentiment reading was 101; which was around the time that the Covid-19 pandemic
Worsening US – China Tensions
Meanwhile, the escalating US – China tensions are casting a shadow on the market.
Trump escalated the tensions after he announced his intention to terminate the
country’s relationship with the WHO (World Health Organization), an organization he
accuses of subjecting itself to China. Donald also mentioned increasing his scrutiny on
Chinese companies on the US stock exchanges.
So, there are disturbances that could negatively impact the stock market. But judging by
the impressive rally of the major indexes and the small-cap and midcap stocks, the
situation seems to be bullish for the near future. But it is important to watch out for the
unfolding international political situation; and also, how the economy fares following
the reopening of business operations in the states.
While Covid-19, the major indexes, small-caps and the midcaps continue to affect the
American economy, get started in stock trading. Use zero commission trading offered
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