As March marked the beginning of spring, the bulls were stampeded by a “perfect storm” of Central Bank actions. From the ECB dropping rates into negative territory and launching a bigger “quantitative easing” program, to the Federal Reserve backing off its plans to hike interest rates this year, the “accommodative support” gave the bulls the clearance they needed to pile back into equities.
With a short-term improvement in the technical underpinnings of the markets and an improvement in overall sentiment, the short-covering fueled rally pushed the S&P 500 back into positive territory for the year. That is where the bulls find their victory.
Yet, despite all of the “whooping and hollering” by the bulls, there has actually been little progress made. Yes, the rally from the lows has been very inspiring, but it is the same rally as seen from the previous two lows.
With volume declining on the rally as short-covering fades, the thrust of Central Bank actions now behind us, the focus will once again turn to the economic and fundamental data. From that standpoint, the “bears” remain firm in the commitments. With profit margins and earnings on the decline, economic data weak and interest rates hovering near lows, there is little support for an ongoing bull rally.
But then again, the current rally has defied expected logic up to this point. Will it continue, or will it die a quick death? With traditional summer weakness fast approaching, that is the question that must be answered and the subject of this weekend’s reading. It’s the bulls versus the bears – who will win?
CENTRAL BANKING
