The first half of May felt like a solid continuation of the rally that started in the 2nd half of April (after the messy, tariff-driven market madness). However, since mid-May several US market indexes are slightly negative. So the rally is starting to show weakness.
Seasonality suggested a generally positive month for the S&P 500 with a mid-month volatility spike. The positive month looks in-line with expectations, though the volatility was later in the month than expected. So what comes next? If we continue on the path of how the major US indexes tend to act in the first year of a presidential term, then June tends towards being a negative month.
While our Growth vs Value look at the market shifted towards Growth in the shorter term, Value is still leading on the longer-term time frames. If that continues (similarly to how 2022 played out) then that factor would also back the idea of next month being difficult for the market. So that will be something to watch.
This month’s chart is another look at the “ducks” going around the pond – again looking at the 11 sectors that make up the S&P 500 index relative to the T-bills ETF (BIL). When I showed this last month, most of these sectors were pointing up and to the right (NorthEast) which tends to be how these look when the market is ready to move upward. But now, we’re seeing the exact opposite. The one exception is how a couple of the more defensive sectors (XLV Healthcare and XLP Consumer Staples) are starting to move upward. However, it’s the Growth sectors like Technology (XLK) and Communication (XLC) that need to be leading the way for the broad market to show more strength.
Relative Rotation Graph (RRG) chart of the S&P 500 sector spyders (Source: Optuma)
Our Shadowridge Long-Term Trend indicator went back to positive on April 24th which led to us seeing money flow back into the stocks that push the market higher. Strength looked steadily up until peaking on May 16th.
Our Mid-Term Cycle indicator turned negative on May 5th, so it suggested playing it safe during the last little burst of a rally into mid-May. However, watching this factor grow weaker and weaker since then also backs up the near-term market weakness.
As of Thursday night (May 29th, 2025), our Shadowridge Dashboard showed Positive to Negative market sectors as 8 to 3. While that sounds good for now, momentum factors (like MACD) are starting to roll over and give early-warning negative readings. But with headline risk being what it is now, the market could turn on a dime given the news: good or bad.
Right now there are 7 RGB Bond Indexes trending positive, above their 50-day Moving Average. After the tariff tantum period that saw all the strong asset classes (like the Economic Bond sectors) get thrown out. These sectors have also recovered quite quickly. And the remaining weak bond sectors are the “safer” US Treasuries and Muni Bonds. The opposite of what I’d expect to see in a bad economic environment.
RGB Economic and Interest Rate Sensitive Bond sectors (Source: ShadowridgeData.com)
The Aggregate Bond market is starting to behave more like it normally would, with less correlation to the stock market. However, it is still giving us too much volatility to be considered a decent diversifier. There are still lower risk areas on the Economically sensitive side that are getting similar results with a fraction of the volatility.
Bottom Line: June has historically been a tough month. So at the very least we’d expect it to not be as easy as this past month’s rebound has been. There is still a ways to go before the US markets can recover their all-time highs. But it could still happen by summertime. I’m just not sure how wild the path to that result will be. If we were on a plane, it would be time to return to your seat with your seatbelt fastened as some turbulence is expected.
Stay safe out there!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.