Pre- Election Year Peak Coming This July?

Seasonality patterns have become more popular among market technicians this past year. After a strong April/May there is often a higher odd of sideways action in June. Not this time. While we only expected a small pullback in a late June Swoon, a handful of Mega Cap Tech stocks continue to skew the pattern Bullishly upward. When the first 5 months of the year are up over 10% in the SP, June usually shows a gain as well. With the tech heavy SP up 5% so far during June, the market may be set to continue higher into the first half of July before losing momentum if this Seasonal influence continues. 

The small cap Russell 2000 Index does not contain mage tech equities and has followed its Seasonal pattern even more closely than the SP with a 5% correction from the mid-month peak. The Russell and most indices favor gains into mid-July. 

In early June there was a sudden consensus calling for a June correction in the Nasdaq and SP that provided sideline buying power for stocks. Thus, with growing calls for a strong July, we will be alert for contrary opinion indicating Buyer exhaustion over the next few weeks. The normally Bullish Seasonal pattern into August may be truncated during this pre-election year pattern that supports a momentum peak near mid-July and a modest correction into August. 

In 2022 there was a plethora of historic indicators, such as an inverted yield curve, that money managers touted as harbingers of a major economic recession and Bear market in stocks that would continue in 2023. Neither have materialized and instead the economy and large cap stocks show increasing signs of strength. With one day remaining in the first half of 2023, it appears this will be the strongest 6 month start to a year on record for the tech heavy Nasdaq 100. Stock market strength to this degree strongly favors a Bull market continuation in the quarters to come.

Unfortunately, signs of a new Bull market are muddied by the stark underperformance of the broader spectrum of companies that are not showing gains this year. It may require a larger market correction and deeper cuts to the inflation rate before interest rate yields break to the downside to set up a broader equity rally supported by value and small cap. Over the short term we will be looking for a Seasonal top arriving in July, at which point big tech momentum should struggle. 

 

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