After the G-20 meeting, President Trump agreed that no more tariffs would be implemented for a short time period. Even though it was nothing definitive, just the positive verbiage was enough to help propel markets a bit higher. YTD gains on the S&P 500 are quite impressive, but if you go back 15 months the index is only approximately 1.7% higher.
The slight gains that we have seen in the last 2 weeks have immediately taken the markets to ‘overbought’ territory as marked by the Relative Strength Index (the RSI). This relative metric is remaining partially inflated because of the large move since Christmas Eve of 2018. While the move higher has created headlines, the hype is not as grand as it appears as we have squeaked out a less than 1% gain from previous highs. This consolidated price action could be ready to expand, as often we see periods of expansion following periods of price contraction.
The direction of the market over the next few days cannot be known and could be swayed by headlines coming out of meetings with Chineses officials; however, the RSI would lead us to approach with caution. Market sentiment is waining as investors beg for positive trade news, lower interest rates, or any reason to hold onto current price levels. A ‘healthy’ market pullback from here in the next week or two would be welcomed before we enter the bulk of earnings season. Healthy pullbacks generally have an orderly feel to them, lacking the panic that we see in corrective pullbacks. If the S&P 500 were to pullback down to the May 2019 highs in an orderly fashion, it could create an environment more forgiving to earnings announcements that are flat or perhaps a bit disappointing. Even a decline to the 50 day moving average, in the neighborhood of 3%, would be healthy at this point.