FOCUS: North American large caps The market is still struggling for meaningful direction and hasn’t been able to make a solid push above this 4,200 resistance point, but has been treading water. We view the stock market in a wait-and-see mode. There doesn’t seem to be a lot of conviction from investors with lower volumes, which points toward uncertainty. The S&P 500’s trading range for the last three months has been the tightest we’ve seen in six years.
In eight of the last nine weeks, markets have moved less than plus or minus one per cent. Market breadth continues to stay weak with only 30 per cent of stocks above their 50-day and 38 per cent above their 200-day, which tells us caution is warranted. The S&P 500 is more concentrated now than during the great financial crisis or the tech bubble. All of the S&P 500’s gains year-to-date have come from the top 10 stocks, with the equal weight S&P 500 actually negative year-to-date.
Rate hikes have appeared to work with the overall consumer price index ticking lower over the past few months. Importantly, core components that strip out volatility are finally starting to roll over. The Bank of Canada has more options back on the table after inflation came in higher than forecast for April and ticked slightly higher.
Meanwhile, the U.S. Federal Reserve realistically has three choices of what course of action to take at their June policy meeting: hike,"hop," or stop. The market and Fed watchers alike expect no move in rates in June and Fed policymakers have hinted as much in recent days, but that might not necessarily be the end of the hiking cycle. Rather, the Fed may just skip a meeting and resume tightening later this year.
Volatility could pick up in June even while uncertainty around headline items are worked out, but we also believe the second half of the year has the potential to be the strongest period yet. We have had a great start to the year and thus now taking profits, getting our portfolios slightly below their strategic asset allocation weights while keeping a defensive tilt.