Pension pulse setting up for a summer rally electricity voltage in paris

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The market is not without risks, and those things that have been worrying it — trade wars, higher interest rates, geopolitical tensions — have not gone away. Oil prices could become a brake on market gains at some point, but so far stocks have taken a near four-year high in oil prices in stride. But if Middle East tensions set off an oil price spike, that would be a worry for stocks.

The more positive news on trade helped push stocks higher Monday. But the small-cap Russell 2000 ran against the trend, giving back gains after touching an intra-day high of 1,614, just a point below its all-time high. The index closed down 6 at 1,600.

The S&P 500 was higher on Monday by 2 points, at 2,730, and is now up 2.1 percent year-to-date, though 5 percent below its all-time high. Energy led with a 0.6 percent gain on higher oil prices, and technology was flat. In the last month, S&P technology has risen about 6 percent, while energy is up about 8 percent.

Ryan Detrick, LPL Financial senior equity strategist, said the fact that the S&P 500 turned positive for the year during the month of May is a positive signal in itself. He looked back at the 36 times the S&P was positive for the year on a total return basis at some point during the month of May. He found that it ended the year higher, on a total return basis, 35 out of the 36 times.

"We think it definitely could happen sometime this summer. The small-caps leading is very powerful. The last time we saw something like this with the small-caps breaking away was January 2013 … that was not the worst time to be bullish over the next six months or so," he said.

"There are some things that could jump in the mix and throw cold water on market sentiment, primarily politics," said Katie Nixon, chief investment officer at Northern Trust’s Wealth Management unit. "We’re coming up to midterm elections." She said investors could worry that a change in congressional makeup, ending GOP majorities, would also reverse or end some of Trump’s market-friendly policies.

"There’s some potential noise that could work its way into the system. If you look beyond the summer, we’re talking about healthy earnings" as well as a Fed that will not be moving quickly. "That’s typically a really good environment for risk assets," said Nixon.

Parker said other positives are that inflation is relatively contained, so the Fed won’t be pushed to hike interest rates more rapidly. "Growth is picking up through the third quarter as fiscal stimulus works its way through, and earnings continue to deliver and corporate buying is strong," he said.

He said even with the 23 percent growth in first-quarter earnings, there have not been that many upgrades to the second, third or fourth quarters, even to just reflect the base effect of first-quarter gains, so there could be earnings beats that continue to boost the market.

On Friday, I went over why some hedge fund managers are betting against stocks. I told you I’m lukewarm on the S&P 500 ( SPY), don’t think it’s the end of days for markets or sell in May and go away, but doubt we will make new highs this year (click on image):

So far, they have behaved well, allowing corporations to easily finance their buybacks, a big factor behind the rising stock market. But if rates rise and high yield bonds get hit as companies default, watch out, it will spell trouble for stocks and other risk assets.

All this to say, I’m trading individual stocks and having a great year but my macro views have not changed. I’m preparing for a second half global ‘synchronized’ economic downturn, and as such I’m recommending investors to trim risk in their portfolio by investing at least 50% in US long bonds ( TLT) and overweight consumer staples ( XLP) and interest-rate sensitive sectors like utilities ( XLU), telecoms ( IYZ) and REITs ( IYR) and underweight cyclical sectors like energy ( XLE), financials ( XLF), metals and mining ( XME), industrials ( XLI) and emerging market shares ( EEM).

You can trade emerging market shares and cyclicals like banks, energy, metal and mining shares — basically, all plays on global growth — but it’s risky and your timing better be good because when the tide turns, it’s going to be very painful.