It’s a very quiet pre-Memorial Day market and the key indexes are down slightly. The cause for the slide is lack of interest by market participants. The degree to which political considerations play a role in the markets is hard to gauge. The Trump-Kim back and forth is probably part of the dampening of market enthusiasm. It appears that both sides want to push the rapprochement to a positive conclusion but a more clearly defined approach by the Trump administration will be necessary for an improvement in the atmosphere.

Meanwhile, the US economy continues to show some weak spots. Durable goods orders in April fell 1.7% m/m after increasing 2.7% the month before. Capacity utilization in April stood at 77.99 vs. 77.56 the month before. Earlier in the week the housing market showed some weakness. Housing starts in March dipped 4.7% while pending home sales fell 3% against a 4.4% decline in February. Construction spending in March was down 1.7% vs. 1% the prior month. Contributing to the softer housing market is a very modest increase in mortgage rates. In May the mortgage rate inched up to 4.86% from 4.77%. Despite the sudden weakness, the outlook remains positive since the Fed is likely to remain bullish and keep interest rates steady. The planned Fed funds hikes are likely to happen in the latter part of the year.

Signs that could prove to be ominous are that the US dollar has had its worst week versus the Japanese Yen since February.   In addition, the 10 Year US Treasury bond’s yield has fallen to below 3%. These events could be indicative that the S&P 500’s highest level that it had reached over the past two months earlier in the week could mark the high for the index’s relief rally.   For more about the dollar/yen exchange rate being a leading indicator for the direction of the S&P 500 visit https://bullsnbears.com/yen-sp-500/ and view video below.