From Messy to Textbook: The Market Finds Its Rhythm

Thoughts on the Market

The past few trading weeks leave little doubt that upside momentum is firmly back in place. After months of mixed leadership heading into the war, the market’s leadership profile finally looks a lot more straightforward.

Much like a year ago, a textbook recovery seems to be unfolding — where the sectors that should be leading are leading, and the ones that usually lag are lagging. As our first chart highlights, the relative strength picture actually looks even stronger on an equal-weighted basis, with Industrials and Financials also helping drive the move off the lows.

That’s an important point, especially with all the talk about the rally being driven by just a handful of stocks. The reality looks a lot broader than that.

At the same time, we don’t want to get too carried away after such a big move off the lows. The rally has been strong, but it’s still important to keep our Cheat Sheet close at hand and make sure our stress indicators are behaving before getting too comfortable.

As a reminder, we’re mainly looking at a 10-day moving average (two weeks) to track the rate-of-change. In simple terms, as long as that trend is sloping lower, conditions are improving — meaning today’s reading is better than it was two weeks. Once that slope turns higher for the first time, it’s a sign things are starting to deteriorate, with today’s reading coming in worse than it was two weeks back.

Right now, everything still looks good on that front — except for the Dollar Index, where the slope could start turning higher at any time. If that starts spreading to other areas, especially oil, it could take some of the wind out of this rally.

That said, it would likely take a more noticeable shift from here to really knock stocks off track.

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As we move into the final stretch of April, earnings season is picking up pace — and so far, corporate America is delivering. With more than a quarter of the S&P 500 having reported, this earnings season is shaping up to be another one of solid performance and upside surprises.

So, here’s a quick rundown:

So far, 137 companies have reported. About 84% beat earnings estimates, with an aggregate 12.3% upside surprise, pushing year-over-year earnings growth to 15.1%.

That’s a pretty decent outcome, especially considering Q1 included nearly a full month of conflict-driven uncertainty and higher energy prices.

Now, cue the bears. The next narrative will be that Q1 is just a pre-energy-crisis snapshot. But we’ve heard this one before — last year it was all about the pre-tariff world… and that didn’t exactly age well.

For now, though, the Snake Charmer seems to be doing its thing again — helping shift the market’s focus away from the noise and back to earnings.

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As we laid out last week, getting the market to refocus on earnings is key if the S&P 500 is going to make a run at 8000 by the end of June. That said, just like during last year’s rebound from the tariff tantrum, it’s worth remembering that we’ll hit some bumps along the way.