May 6, 2025
Equities have staged their first significant rally since corrective price action took hold during February of 2025. Prior to Monday May 5th, the S&P 500 had posted gains in 9 consecutive sessions bringing price to the neckline of a potential bullish reversal for the index (chart below). We think the 5786 level is key to confirming the bullish reversal for the S&P 500. So far, prices are pulling back just shy of that level. We remain constructive on the bullish reversal as long as price remains above initial support at the 5500 level.
Another gage of US equity strength is performance vs. the MSCI All Country World Index (previous chart, bottom panel). The ratio shows US equities gaining equilibrium in April and attempting to push gains into May. US recovery likely goes hand in hand with US outperformance vs. the All-Country World Index (ACWI), so that’s an indicator we should pay attention to.
Within the US we are looking for “risk on” themes to show signs of life. With that in mind, two important charts to monitor are a Mag7 proxy and a Semiconductor proxy. We use the Roundhill Magnificent Seven ETF (MAGS) and the Philadelphia Semiconductor Index (SOX) respectively. Both have rallied with the S&P 500 in the 2nd half of April and are approaching bullish reversal levels. We think upside confirmation here is key.
On the SOX Index chart (below) we see the 4747 level as a key threshold for Bullish reversal above March highs. That level is right near the 200-day moving average line and we’d likely get our bullish reversal signal on excess returns vs. the S&P 500 as well if that level is taken out. We typically look for >10% excess returns vs. the benchmark over a period of <6 months to register a bullish reversal.
The chart of the MAGS ETF (below) is in a similar position to the Semiconductor Index though the threshold for bullish reversal is closer, roughly 5% above today’s price rather than 10% for Semi’s. We think Mag7 stocks are accumulation opportunities here with the Trump Administration starting to make deals.
Longer-term we think inflationary pressures (or lack thereof) will be a big determinant in how long the current economic expansion can continue. Hire rates likely imperil the bull market while lower rates keep the door open for relief from the Fed while keeping the credit spigot open.
Data sourced from Factset Research Systems Inc.
