The Word from Main Street

Market Update for the Week of May 27th, 2024

Memorial Day weekend is upon us and, as in years past, we will be frequenting many summer backyard BBQs. We have found that these parties can give some very helpful insight into investor sentiment. Friends, family, and clients are often curious about our take on the market. Different market and economic environments create different BBQ environments. Nasdaq Dorsey Wright calls it the “Backyard BBQ Bullish Percent” indicator.

Source: Nasdaq Dorsey Wright

Domestic Equities (U.S. stocks) remain atop the DALI (Dynamic Asset Level Investing) rankings, with Technology leading the sector rankings. The S&P 500 (SPX), the Nasdaq (NASD), and the Dow (DJIA) each hit new all-time highs within the past couple weeks. Meanwhile, volatility has fallen to multi-year lows as the S&P 500 Volatility Index (VIX) has given four consecutive sell signals and reached its lowest level since 2019. Low volatility is generally good news for stocks. However, when the VIX has fallen to extreme lows, it has often preceded spikes in volatility.

Source: Nasdaq Dorsey Wright

Within International Equities, the Asia Pacific region has gained relative strength aided by a rebound in Chinese stocks. The average score for the China group has risen to a level not seen in more than a year.

Precious metals have made impressive gains recently. Gold is up more than 15% year-to-date and recently reached a new all-time high. Meanwhile, silver reached its highest level in more than a decade and has become extended. The rise in precious metals prices has come despite higher-for-longer rhetoric from Fed officials. Precious metals and interest rates tend to be inversely correlated. U.S. Treasuries and precious metals (especially gold) are viewed as safe-haven assets and low yields make gold more attractive by comparison. The upshot is that the countertrend move by precious metals could give way, although at this point, there have not been any significant signs of diminishing relative strength.

While Fed officials have said that they have not yet seen enough progress on inflation to lower rates, the Fed futures market is still pricing a slightly better than 50% chance of one 25 bps (0.25%) rate cut by September.


Source: Nasdaq Dorsey Wright

While the market is still expecting some easing this year, the direction of rates remains uncertain as the minutes of the last Fed meeting recently released noted that some FOMC members had voiced a willingness to tighten policy further if it became appropriate.

The current reading for the Nasdaq Dorsey Wright PR4050 Cash Trigger is: Money Market = 2.82% & U.S. Equity Core = 98.59%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, Money Market must be 50% or above and U.S. Equity Core must be 40% or below.


Source: Nasdaq Dorsey Wright

Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing Domestic Equities remaining in the top spot, while International Equities is solidly ahead of Commodities.

Source: Nasdaq Dorsey Wright

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These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.

Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.