Stock Squeeze Setting Up For May?
From a seasonal perspective, stocks tend to do well in April. Over the last 25 years, April has been the strongest month for the DAX, and the FTSE, as well as one of the strongest months of the year for the S&P500. So, April tends to be a great month for stocks. See the seasonal strength in the charts below from Seasonax seasonal charts.
This seasonal bias has been seen this month as stocks have been helped by expectations of rate cuts from the Fed in the second half of this year. The Silicon Valley Bank prompted the banking crisis added to hopes of rate cuts coming to ease financial conditions. However, this narrative will once again be tested around the Fed’s meeting on May 3. The rate expectations are that the Fed will hike one more time (88% chance) in May before pausing. From there the STIR markets see two rate cuts into year-end. See the interest rate probability tracker tool from Financial Source:
Sell in May and go away?
Stocks typically see a weaker summer period and that is timing with the Fed announcement on May 3. The risk is if the Fed set up a hawkish meeting in May that would send stocks lower on higher rate expectations. Remember, the short-term interest rate pricing has not been confirmed by the Federal Reserve. The Fed is not communicating rate cuts this year at all. Also, most analysts are worried about a bearish period for stocks ahead. Bank of America’s April Global Fund Manager survey is the most bearish of 2023 on credit crunch woes. A credit crunch and hawkish central banks are seen as the largest tail risk.
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