Is a Summer Rally in the Cards?

Global stock markets continued on a positive note, with the Dow Jones up 0.46%, the S&P 500 gaining 1.01% and the NASDAQ jumping 1.79% over the holiday-shortened week. The MCSI Emerging Markets Index rose 1.97%.

Big gainers included Costco Wholesale Corporation (COST), which jumped 4.35%; KraneShares CSI China Internet ETF (KWEB), which added 3.09%; BYD Company, Ltd. (BYDDF), which rose 2.85%; and the Market Vectors Biotech ETF (BBH), which climbed 2.35%.

Google Inc. (GOOGL), the AdvisorShares TrimTabs Float Shrink ETF (TTFS) and WisdomTree Japan Hedged Equity ETF (DXJ) rose above their 50-day moving averages and moved to a BUY.

Both Berkshire Hathaway (BRK-B) and Home Depot (HD) fell below their 50-day moving averages and moved to a HOLD.

After last week’s rally in global stock markets, the S&P 500 is back to near its previous highs — and a very robust line of technical resistance.

Sure enough, stocks are already looking slightly weaker in this holiday-shortened week. Yesterday, the Dow shed 0.5% and the S&P 500 dipped 0.1% as energy shares weakened and oil pulled back from eight-month highs. Asian stocks also opened on weak footing this morning as tumbling oil prices dampened investors’ appetite for riskier assets. Both of Japan’s Australian stocks fell at least 1%.

Like most investors, I would love to see a summer rally.

Sadly, the weight of the evidence is against this…

The U.S. stock market is facing numerous headwinds. As the extremely sloppy chart of the SPDR S&P 500 ETF (SPY) below confirms, the U.S. stock market has done nothing in the past 12 months.

This is not an easy market in which to make money.

Yet it is in this environment that the Fed is likely to raise rates in the coming months. Recall that the last raise in rates preceded what turned out to be the worst start to a year in stock market history. Clearly, even small moves in rates have a disproportionate impact on financial assets.

Throw in the earnings recession in the S&P 500 and weak seasonality (“Sell in May and go away”) and its tough to argue for a coming summer rally.

As I have noted, this is a stock picker’s market and we’ve got to dig deep to pull a profitable rabbit out of the hat.

Portfolio Update

Google Inc. (GOOGL) rose 2.16% over the previous week. Google has been trading sideways for the past month after an earnings report stumble. However, this position came to life last week after it was reported that Google won an important software copyright case against Oracle. In a nutshell, Oracle was claiming that Google used copyrighted software code that apparently fell under a “fair use” clause. GOOGL also rose above the 50-day moving average (MA) to become a BUY.

AdvisorShares TrimTabs Float Shrink ETF (TTFS) added 1.35% last week. AdvisorShares announced last week that California-based Wilshire Associates will serve as the new sub-advisor of TTFS. TTFS will retain its ticker symbol and be renamed to AdvisorShares Wilshire Buyback ETF effective July 1. AdvisorShares expects that Wilshire will be able to continue TTFS’ winning ways, lower fund costs and reduce management fees. TTFS rose above the 50-day MA and is now a BUY.

PayPal Holdings (PYPL) lost 2.90%. Analysts at J.P. Morgan forecast that PayPal could be boosted if the United Kingdom decides to remain as part of the European Union. The vote on “Brexit,” the term used to describe whether Britain will leave the European Union, is happening on June 23. Sentiment seems to be moving towards a “remain” vote lately, pushing the pound sterling up 2.2% against the euro and up 0.8% against the U.S. dollar. PYPL is a HOLD.

Illumina Inc. (ILMN) moved 0.94% higher. Illumina continued to break historical ground announcing an agreement to work with ArcherDX, Inc. The two firms will use their own technologies together to “dramatically improve patient outcomes and lower the sample and cost burdens of clinical sequencing” — something ArcherDX’s chief executive office called “a paradigm shift” in the field. ILMN is a HOLD.

Costco Wholesale Corporation (COST) jumped 4.35% over the past week on the heels of a better-than-expected May 25 earnings report. COST reported earnings of $1.24 per share vs. a $1.22 consensus estimate. Revenue was $26.77 billion vs. an estimated $27.13 billion. Revenue grew 2.6% on a year-over-year basis. RBC Capital maintained its “Outperform” rating and increased its price target from $169 to $173. COST is a BUY.

Sincerely,