Will June be painful for the markets?
US markets (ITOT) have continued to rise since the US election and have remained in positive territory in the last six months. Despite political uncertainties and a slowdown in some corners of the economy, which has been a concern for the Federal Reserve, investors continue to support the markets, helping US indexes (USMV) to scale new peaks.
The S&P 500 (SPY) closed at 2,415.82 in the week ended May 26, 2017, gaining an impressive 1.4% in the week and 1.3% in the month of May. The big question is this: Will this optimism continue into the summer months?
Speculators and traders are reducing their interests in the S&P 500
According to the Commitment of Traders report, speculators and traders have decreased their positions in S&P 500 futures. The COT report, which is released every Friday and is updated through Tuesday of the same week, shows how large speculators and traders positioned themselves in futures markets.
Total net positions stood at -6,586 contracts, a fall of -2,015 contracts compared to the previous week. To break down these data, speculators continue to remain short on index (MTUM) futures, but the size of their short positions has decreased. Are traders continuing to believe the old saying “Sell in May and go away,” will would they remain positioned for fear of missing out, as they expect the Trump administration to announce much-awaited tax and spending reforms in the next few months?
Will investors remain invested?
In our view, the fear of missing out is likely to keep investors invested. If we consider the markets’ reaction to events in May 2017, it seems like investors have shrugged off all the bad news. This risk appetite is likely to keep indexes afloat, and only a series of disappointments in economic data or the failure of the Trump administration to deliver on poll promises could derail this momentum.
In the next part of this series, we’ll analyze how the US dollar (UUP) performed last week.