The market had another solid week as the S&P looks to finish up over 1%. Uptrends are defined as higher highs and higher lows. With the up move this week we have a higher high (just barely) and a continuation of the uptrend that started with the tariff pause back in April. While the uptrend has weakened, it does remain valid. The slower pace of the advance has enabled the market to work off any overbought conditions. The market is at a relative equilibrium now with buyers slightly outnumbering sellers. It is a good configuration after such a large move in May. While a pullback from these levels is not out of the question; we continue to believe that weakness should be bought. Remember pullbacks are a normal part of investing and a 2-3% decline back down to the 200-day moving average would not be unusual. We are likely to get that over the next few weeks.
The VIX is confirming what we have seen over the last month – the bulls are firmly in control. The volatility index is down to levels (teens), where it becomes easier to make money in the market. As long as the VIX stays below 25 (preferably below 20), then the bulls will maintain the upper hand.
Our Point
The markets continue to digest news much better than it did earlier this year. Headlines are having less and less effect on the markets which is one reason why the VIX has fallen to the levels seen above. Earlier this year, several of the headlines of this week would have led to significant market moves. For example, the phone call between Trump and Xi yesterday would have created a positive move up a couple of weeks ago but did little for the market yesterday. Similarly, the rift between Elon Musk and Trump would have previously led to a sell-off but the markets appear to have shrugged that off as well. The change in market psychology is welcome as it brings technical analysis back to the forefront. The chances of a continued move upward remain greater than any significant decline. This morning’s job report was welcomed as the market surged on the report. After the weak ADP numbers on Wednesday, there was some worry that the job’s numbers would come in very weak. Instead, they came in at expectation and the market breathed a sigh of relief. The economy remains on solid footing with the hope that tariff deals are struck soon and that inflation continues to moderate/decline. We’ll get new readings on inflation next week with the CPI and PPI. If the trend of lower inflation numbers continues, Chairman Powell will come under increasing pressure to begin cutting Fed rates. Corporate buybacks will cease over the coming week or two as companies go into black out periods before earnings in July. Though much of the headline risk of tariffs have been priced into the markets, surprises and/or favorable deals that are struck will move the markets. Historically, June is a market laggard. Since 1957, it’s average return is .06% making it the second weakest month (September takes the crown for weakest). However, the caveat is that June defies their poor ranking when preceded by a strong May. We’ll see how it plays out this year; but with new all-time highs in sight, it would not be surprising to see the markets make a run at those levels over the coming weeks. We are fully invested and made no changes to our holdings this week. We are looking at a couple of investments that might be an upgrade to our existing holdings but have been very pleased with how our current portfolios are performing. The Vols baseball team is back in action this weekend with a trip to Omaha on the line. With a rainy weekend forecasted, I will not have to make an excuse to watch versus doing yard work! Enjoy your weekend wherever it finds you.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bills Asset Management (“BAM”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from BAM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BAM is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of BAM’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.billsasset.com.
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About Bo Bills
Founder and Chief Investment Officer at Bills Asset Management. With over 30 years of experience in managed risk investing, Bo has helped countless clients achieve their financial goals while preserving capital.
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