May 16, 2025

Stocks moved sharply higher this week on further de-escalation of reciprocal tariffs with China and new trade developments with several Mideast countries while inflation data remained muted. Economic data was mixed showing a slowing, but still resilient economy and the S&P 500 carried a five-day win streak into the weekend. Investors were risk-on to start the week after the world's two largest economies agreed to a baseline 10% tariff which was a far greater cut than expected. The S&P 500 jumped +3.26% and the NASDAQ surged +4.35% with consumer and technology stocks leading the charge. The major averages gapped above key resistance areas and the S&P 500 and NASDAQ closed at their highest level since February. It was a volatile week in the bond market with the rate on the 10-year Treasury briefly crossing above 4.50% before settling at 4.445% and the two-year T-Bill ending the period above 4% for the first time since mid-April. Crude oil prices inched higher for a second straight week, but demand concerns limited gains as OPEC+ increased production. Every sector finished positive with Technology (XLK), surging +7.95%, and Consumer Discretionary (XLY) jumping +7.54%, leading the rally, with Industrial (XLI) and Communication Services (XLC) also outperforming. Semiconductors were strong, surging +10.20%, and the Philadelphia Semiconductor Index is now up more than +45% off the April intraday low as the White House softened restrictions on international chip sales. The major averages continued to grind higher and the DJIA and S&P 500 closed the period up for a third time over the last four weeks. Next week, Q1 earnings season will be light and market participants will focus on ongoing trade negotiations as the different indexes look to digest some of the recent gains after their rally off the April lows. 

For the period, the DJIA gained 1405.36 points (+3.4%) and settled at 42654.74. The S&P 500 added 298.47 points (+5.3%) and closed at 5958.38. The NASDAQ jumped 1282.18 points (+7.2%) finishing at 19211.10, while the small cap Russell 2000 traded higher for a sixth consecutive week gaining 90.18 points (+4.5%) and settling at 2113.25.

Market Outlook: The technical condition of the market improved this week but the different indexes ended the period overbought with stochastics in the mid to upper 90's. The major averages cleared resistance during the week closing above their respective 200-day moving average (MA) with the DJIA, S&P 500 and NASDAQ hurdling their March closing highs. The technical indicators are in bullish ground including MACD, a short-term trend gauge, and Momentum, as measured by the 14-day RSI. The S&P 500 and NASDAQ also saw a technical buy signal given by the ADXR during the week. The S&P 500 was able to hit its target of 5950 given in the 5/9/25 Market Letter, while the DJIA target of 43,500 has yet to be reached, mostly due to the selloff in UnitedHealth Group (UNH). The secondary indexes, which include the DJ transportation Index, Russell 2000 and Philadelphia Semiconductor Index, which market technicians like to see lead the market, saw the transports and semiconductors outperform the major averages during the week which is a plus going forward. In addition, this week's gains were across all sectors with Financial (XLF), Industrial (XLI), Technology (XLK) and Utilities (XLU) all within a chip shot of reaching record highs. 

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. 

Currently, the CTI is positive at +10, down three notches from the previous week. Cycles B, C and D are bullish, while cycles A and E are bearish. The CTI was reset to a bullish configuration the week ending 4/18/25 and will stay positive through June.

Momentum Index (MI): The markets momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. 

The Momentum Index is positive at +8, unchanged from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 3088 units while the number of new 52-week highs exceeded the number of new lows on each session. Breadth was also positive at the NASDAQ as the A/D line added 3567 units while the number of new highs out did the new lows on all five days. Finally, the percentage of stocks above their 50-day moving average rose to 69.7% vs. 56.5% the previous week, while those above their 200-day moving average jumped to 43.8% vs. 32.6% the prior week. Readings above 70.0% denote an overbought condition, while below 20% is bullish. The NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, were higher for a fifth consecutive week showing the majority of stocks are under accumulation and the NYSE A/D line closed the period at a new record high which bodes well for the market going forward. New 52-week highs outdid the new lows on both the NYSE and NASDAQ snapping an 11-week streak where the NASDAQ had recorded more new lows than highs. New highs on the NYSE expanded for a third consecutive week.

Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Neutral at +0, down two notches from the previous week. Investor Sentiment is neutral, but investors are playing 'catch up' in exposure to equities as tariff and trade deals come in far better than hoped for. The American Association of Individual Investors (AAI) has seen retail bulls jump to 35.9% from just 20.9% two weeks ago, but remain just below the historical average of 37.5%. According to the National Association of Active Investment Managers (NAAIM) Exposure Index, the professionals had doubled equity holdings from 40.7% as April ended to 81.1% last week before trimming positions to 70.6% after the recent runup.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bullish as of the week ending 5/02/2025 (DJIA - 41317.43). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Group Rankings: What's Hot (13) - What's Not (17): The following are the strongest and weakest Industry Groups for the period ending 5/15/25. Strongest: Integrated Oil & Gas, Metals & Mining, Construction and Wholesale. Weakest: Paper & Forest Products, Healthcare Products, REITs and Real Estate. To review all the Industry Group rankings in the Market Edge universe, click on the Industry Group tab.

ETF Center: The top performing ETF categories for the week ending 5/15/25 were: Sector-Alternative Energy (+9.58%), Specialty Technology (+9.14%), Growth-Large Cap (+5.52%), Blend-Large Cap (+5.24%) and Growth-Mid Cap (+5.09%). The weakest categories were: Shorts (-5.08%), Commodity-Precious Metals (-1.86%), Specialty Health (-1.04%) and Bond-Government Long Term (-0.80%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT