S&P 500, DAX 40, FTSE 100 and Nikkei 225 Fundamental Forecast Talking Points:
- Seasonality likely plays a significant role in the S&P 500[1]’s and other major indices’ recent rebound, but structural issues remain
- There is a confluence of systemic fundamental issues weighing the major equities markets lower, but the quickly deteriorating growth forecast is a top concern
- Monetary policy should be considered just as effective and onerous a threat to the market with central banks committed to hikes despite capital market struggle
Fundamental Forecast for S&P 500: Bearish
After seven straight weeks of bearish slide, the S&P 500 has finally found some semblance of balance with a relief rally. This could be the start of a significant reversal after the longest unbroken tumble since March 2001, but I consider it far more likely to be a temporary bounce. From a statistical basis, June is one of the weakest months for performance of the calendar year with the early start of the summer doldrums bringing on a significant slump in activity levels. Normally, that would be a favorable factor, but it isn’t a strong feature when the fundamental backdrop is overwhelmingly difficult and requires strong conviction to override the momentum. On the fundamental side, the conditions are onerous. We have passed through earnings season, and that leaves us with more persistently troublesome macro issues. The outlook for economic activity has deteriorated sharply since the IMF warned the world’s largest economy would suffer alongside the rest of the world. On the growth front this week, key event risk in the ISM manufacturing and services surveys will serve as strong proxy to GDP. Otherwise, the Conference Board’s consumer sentiment survey and Friday’s May NFPs[2] will reflect on the US consumer – one of the strongest forces in
