Weekly Market Outlook – A Perfect Setup for “Sell in May and Go Away”? That’s Half True.

Another week, another win. Despite the wobbly start, the bulls finally started getting some traction on Thursday to carry the S&P 500 up another nearly-1%. That’s the fifth consecutive winning week for stocks, although the last couple have been anemic, low-volume efforts. This may or may not be built to last. Indeed, we’re now headed into a very slow -- and often a little bearish -- time of year with plenty of profit-taking potential stored up. Most of the indexes are also bumping into some established technical ceilings.

We’ll look at it in detail below. First, let’s work through last week’s biggest economic announcements and preview what’s in the lineup for this week.

Economic Data Analysis

Things got going on Tuesday, starting with an updated look at the nation’s home prices. As has been the case for a while, they crept higher, but it’s clear that at least through February home values are starting to reach their maximum levels.

Home Price Charts

Source: FHFA, Standard & Poor’s, TradeStation

Also on Tuesday we heard last month’s sentiment score from the Conference Board, rounding out the University of Michigan’s update from a week earlier. The Conference Board said optimism edged a little higher in April, in contrast with the Michigan score. Either way, it’s pretty clear most everyone feels less than great about what awaits (despite the market’s continued bullishness).

Consumer Sentiment Charts

Source: University of Michigan, Conference Board, TradeStation

On Wednesday we rounded out the real estate picture a little more, with March’s -- and February’s -- housing starts and building permits. In something of a reversal of recent movement, starts jumped, and permits plunged. Regardless, it’s pretty clear that consumers (and maybe builders) are shopping around for the best time to do either. Either way, however, both remain at lackluster levels that suggest interest in real estate at current prices is pretty low.

Housing Starts and Building Permits Charts

Source: Census Bureau, TradeStation

That update preceded Wednesday’s decision regarding interest rates, of course, although by that time the Federal Reserve was locked in, and is likely locked in for the next several months. The Fed Funds Rate was left unchanged, and given recent inflation, nobody expects the FOMC to lower rates in the foreseeable future… an expectation that was affirmed on Thursday by March’s personal income and spending data. Consumer expenditures were up 3.5% year over year (including food and fuel), but income grew a solid 0.6% for the month. Rising prices don’t appear to be a problem.

Finally, on Friday we heard from the Institute of Supply Management about the country’s manufacturers. For the fourth month in a row activity was in positive territory.

ISM Services and ISM Manufacturing Index Charts

Source: Institute of Supply Management, TradeStation

The ISM’s services index update for April is due on Tuesday of this week. Look for a slight improvement on March’s number, which is also in positive territory (above 50). This data also says there’s no immediate need for a rate cut.

Everything else is on the grid.

Economic Data Report Calendar

Source: Briefing.com, TradeStation

Things are going to be a little less raucous this week, but only a little.

We’ll get a big update on the state of the nation’s housing market on Tuesday when we hear February’s and March’s new home sales numbers, rounding out the aforementioned starts and permits data. We’ll likely see a bounce back from January’s plunge, but only back to the mediocre levels we’ve seen since 2023. And it’s not like anyone’s simply opting for an existing home either.

New, Existing Home Sales Charts

Source: Census Bureau, National Assn. of Realtors, TradeStation

Inventory (or lack thereof) is a problem, but still not as much of a problem as high prices.

This week’s big news, of course, will be Friday’s jobs report. Forecasts suggest net payroll growth of only 53,000 -- down from march’s 178,000 -- reflecting a bunch of fresh layoffs (particularly from within the technology sector). Even so, economists don’t think it’ll be enough impact to change the nation’s current unemployment rate of 4.3%.

Payroll Growth, Unemployment Rate Charts

Source: Department of Labor, TradeStation

Stock Market Index Analysis

You may recall from last week that we were worried about the S&P 500 bumping into the upper boundary of a (rarely-seen) moving average envelope. The index was already slowing down as it approached this technical ceiling, in fact. Well, this boundary did play a role in last week’s action… just not in the way we expected. After a brief pause from the market, this upper envelope (yellow) moved higher, giving the index room to move higher, which it used in full.

S&P 500 Daily Chart, with Volume and VIX

Source: TradeNavigator

The same possibility of a pullback still exists though, for the same reason, and now a new one. If you look closely on the daily chart of the S&P 500 above, the index tested it -- and even moved above it --briefly on Friday. The slide back to the low and the open suggests transition though, from higher to lower. The fact that the volume behind the entire rally all the way from March’s low, in fact, still suggests (to us anyway) this bullishness is more fragile than it seems to be on the surface.

The key is simply getting the bearish ball rolling. Nobody appears to be interested in committing. And who could blame them, given how easily the market rallies at this time?

Whatever the case, here’s the weekly chart of the S&P 500 for a little more perspective. There’s not a whole lot more to absorb here, other than to illustrate the fact that the rally is cooling off. Also notice that the current rally stopped when it bumped into a resistance line (pink, dashed) that connects all the key highs going back to late-2024. This is a great, technical place for the rally to stop and reverse.

S&P 500 Weekly Chart, with MACD and VIX

Source: TradeNavigator

The weekly chart also reminds us, however, that the market is capable of making longer-lived and bigger rallies… like it did in April of last year. That recovery lasted for months, and gained 45% from its beginning before peaking in January. It’s certainly not impossible for the market to continue advancing from here.

Here’s the big problem with that prospect (other than the fact that stocks are now up 100% from 2022’s bear market bottom): We’re at a time of year that isn’t particularly bullish… although not for as long as you might guess. May’s usually a poor month regardless of the environment, although if we’re in a bull market, stocks still tend to rally in the summertime, after May’s lull.

S&P 500 Average Annual Cumulative Performance

Source: TradeNavigator

In other words, sure, “sell in May.” Just don’t blindly assume you’ll want or need to “go away” through September. As long as the market doesn’t start taking on too much water too fast – maybe breaking back under the key moving average lines it just hurdled – stocks may only need a slight cooling-off period here before renewing the current rally at a more reasonable pace.

That’s the call, by the way. Let’s assume a bit of a bearish pushback is going to take shape this week. Only time will tell whether or not it actually turns into anything more than that.