Despite the fact that stocks have had a good week, with the S&P 500 up a little more than 1.5%, we still view the market as being in the midst of a consolidation period, as Rick recently wrote.
Why do we believe this, considering that the S&P is now about 1% below its April 2nd high of 1,419? For one thing, economic data has turned decidedly mixed lately. This can be seen in indicators such as the Citigroup Economic Surprise Index, which recently fell below 0, indicating that on balance, economic data has been falling short of expectations. This is a fairly significant change from earlier in the year when the data was mostly better than expected.
As Rick explained, a consolidation doesn’t necessarily translate into another gut-wrenching sell-off similar to those experienced in each of the last two years (although it seems that many investors are expecting that to happen again). Instead, it may just involve several more weeks of choppiness that allows the market to digest the impressive first quarter gains. After making a couple relative trades recently, we’ll probably step back and wait for the market to works its way through this period before making additional adjustments.