Is a summer swoon coming?
06/29/17

Are clouds gathering for a summer storm? That question has some experts looking to the skies.

Consider the chorus of bearish comments below that have grown louder in recent weeks:

  • June 9: Jason Hunter at JPMorgan said slowing momentum in the economy and stocks could result in a correction by autumn.1
  • June 9: David Bianco at Deutsche Asset Management felt summer fatigue coming on. The next 5 percent move will be lower, not higher, he cautioned.2
  • June 22: Tobias Levkovich at Citi said investors were shifting away from major leaders like Apple (NASDAQ: AAPL) and Amazon.com (NASDAQ: AMZN). That’s a sign of complacency, he said.3
  • June 23: Chris Verrone at Strategas Research warned the calendar might not be a friend for the bulls over the next few months because performance typically hits a soft patch in July.4 
  • June 28: Jill Carey Hall at Bank of America Merrill Lynch fretted about a shift to safe-havens like utilities. Those tea leaves, she said, show nervousness about the economy.5

Speaking of the economy, Hall’s colleague at BAML, Michelle Meyer, recently cut her forecast for gross domestic product. She cited a lack of tax cuts and fiscal stimulus.6 The International Monetary Fund parroted her analysis a few days later.7

After all, the current rally was launched by hopes that unified control of Congress and the White House would blossom into growth-friendly policies. (Since the S&P 500 started running in November, it’s only had one negative month.)  It was supposed to be a verdant spring of new highways, lower taxes, and less regulation, but so far it’s been a frozen tundra of inaction.

S&P Global 500, 3-month chart

Source: OptionsHouse by E*TRADE

Traders have also watched as two major sectors found themselves on the receiving end of a beat down. Technology has yet to recover from a sharp selloff on June 9 (#techwrech). Energy is also in the midst of its worst losing streak on record as the deepening glut of oil supplies drag down prices.

Chart watchers are also starting to wonder if the S&P 500 didn’t form a “spinning top” on June 9. That’s when prices end flat despite swinging sharply higher and lower. Technicians sometimes view that as a reversal indicator. Some may even notice the index has only closed outside that range (2416-2446) one day since the pattern appeared.

Bottom line, there are always bullish and bearish voices in the market. But this time the negative arguments are coming from economic, seasonal, and technical vantage points.

 

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1. CNBC: JPMorgan sees a 'summer top' and market correction into the fall. 6/9/17.

2. Marketwatch: Sell for the summer as the stock market’s next 5% move is down, Deutsche Bank says. 6/16/17.

3. CNBC: This chart shows that stocks may be primed for a pullback. 6/22/17.

4. CNBC: This chart shows the stock market is about to enter a dead zone. 6/27/17.

5. Business Insider: The stock market is sending Janet Yellen a crucial message. 6/28/17.

6. RTTNews: Bank Of America Lowers U.S. GDP Outlook. 6/23/17.

7. Reuters: IMF cuts U.S. growth forecasts, cites Trump fiscal plan uncertainty. 6/27/17.