It is hard to make sense of the recent stock market volatility. Here are some important thoughts to consider.
Markets rebounded in April as fundamental factors drove prices higher. Among the factors influencing the markets were global expansion, positive domestic activity, increasing earnings, and capital spending increases.
Stocks traded sideways, with the S&P 500 temporarily trading below its 200-day moving average in early April and then bouncing back toward the middle of its recent trading range. This technical narrative is essentially positive, meaning that the market bounced from a low upward towards possible new highs.
Market watchers have termed the drop in equity prices in early February as a “shock drop”, resembling reactions driven by human behavioral activity. Since the initial down turn in February, there have been several intermediate-term downturns, alluding to fundamental weaknesses that have not materialized.
Correlations among various equity sectors have diminished as specific industries and companies are sought after rather than the broad indices. Analysts refer to this as a “stock picker’s market”.
Analysts raised their 2018 forecasts for revenue growth for S&P 500 companies to 7.2%, up from 5.4% in 2017. Financial and industrial stocks historically have seen earnings improvements during rising inflation and rising rate environments.
Kent G. Forsey, CFP®
Sources: S&P, Bloomberg, Reuters, OneBlueWindow, LLC.