Each week I (Seth Golden) write a macro-market Research Report at finomgroup.com, for thousands of investors, strategists and portfolio managers around the world. The following excerpts are taken from this weekly report, for which is title the Weekly Nifty 9 Must Knows! Check it out below, and for access to the full report, subscribe to our Contributor or Premium membership plans and receive access to our full-scale and best-in-class analytics each week.
Even after this big rally, the market continues to trade more than one standard deviation below its long-term regression trend (top chart) and below where it began the calendar year on January 1, 2026. It’s hard to imagine, right? After a 7-week long rally and 15%+ return, the market can prove inarguably cheaper today than where it began the year. Hard to imagine, indeed, and when there has developed an industry bubble from the Semiconductor industry. But facts are facts, folks.
How much more price consolidation takes place remains to be seen and may be foretold by certain of our quantitative studies. I would encourage investors/traders to recognize a Ned Davis Research “Sell” signal triggered by the most recent move higher in the monthly Consumer Price Index (CPI). Indeed, all manner of inflation data had proven hotter than economists’ estimates this past week, with an expectation for both CPI and PPI to ratchet higher come June’s reporting period for the metrics.
The indicator turns bearish when the year/year CPI climbs to at least +0.6% points above its 6-month moving average. Think of it as quantifying the shift from disinflation to inflation. This past Tuesday’s CPI report pushed the indicator into its bearish zone. More holistically, the recent rise in inflation can no longer be dismissed as a short-term spike.
While a sell signal sounds negative, keep in mind and as highlighted in grey via the legend/quant, average annualized returns are still a positive 2%+, but the least of annualized return results when compared to other inflation/disinflation regimes.
Unfortunately and as evidenced in the chart of Average P/E versus Inflation data, we may be leaving the best regime/performance ratio when CPI hits 4% later this quarter/year. The best regime for P/E is when inflation is running between 2% and 3%, and deteriorates from there. At between 4% and 5% inflation, we can see the P/E headwinds becomes problematic for the S&P 500. As such and given the evidence, we can better rationalize why there has not been P/E expansion in 2026.
Keeping in mind that this past Friday’s weekly closing S&P 500 value was 7,408 and the 7-week long rally was greater than +10%, the study above from Bluekurtic could inform of near-term choppy to downside price action as well. This study not only looks at the duration of the win streak, but the magnitude of the returns during the win streak. There have been far fewer 7-week long win streaks with this much strength, only 11 previously. This quant study also holds a less than 70% positivity rate over the forward 1-week period. Having said that, much smoother sailing thereafter. 3-month returns were positive in 10 of 11 instances, with a median gain of +3%, akin to the former study. Importantly also, none of these cases led to a -20% drawdown over the following year, which informs that the bull market is likely to live on and in spite of the U.S./Iran/Israel war. Additionally, 3-month forward peak-to-trough drawdowns were muted on average of just under -5%. If the markets were to consolidate -5%, that would take the S&P 500 down to 7,037 by August 15, 2026 (August 17th due to weekend calendar).
In the 13 prior years in which the Nasdaq was up at least +5% from April 7th – May 7th, the following May 7th – 29th time frame was a perfect 13-0, for an average Nasdaq gain of +3.55%! The Nasdaq closing value on May 7th was 25,806 and currently resides at 26,225. With a perfect track and even anticipating some price consolidation in the coming week/s, we would be well informed to buy the Nasdaq should price dip below 25,806 and before the quant period ends on May 29th. As another aside; Nvida (NVDA) quarterly report will be delivered this coming week on May 20th, and after a significant price rally over the trailing 45-day period (Wayne Whaley).
As per the last 6 months, new jobless claims, along with the Boom (or maybe bubble) in the stock market, are the most positive of all of the current economic indicators. For the week, initial claims rose 12,000 to 211,000, while the 4-week moving average rose 750 to 203,750. Although I won’t put up the long term historical graph, these continue to be lower than at any point between 1970 and 2018, and at the low end thereafter. Continuing claims, with the typical one week delay, rose 24,000 to 1.782 million. Historically this is also lower than at any point between 1975 and 2018, although they were much lower in the immediate post-pandemic Boom of 2021 through mid-2023:
As per usual, the YoY% change is more important for forecasting purposes, and so measured initial claims were down -6.6%, the four week average down -11.1%, and continuing claims down -5.4%:
At present, and while unfashionable to suggest, the combination of low unemployment, 60-year low level jobless claims and inflation below 4.3% are actually the ideal backdrop for the S&P 500 and or general market returns, as already proven by year-to-date returns. In the interim, we recognize this combination in the trailing quarterly, nominal GDP of 6% and accelerated earnings growth rate through the Q1 period. Moving forward, we would like to see improving labor trends and inflation trends, which proves somewhat of a top in the inflation surge absent demand destruction and further fueling the earnings trend. Equity and bond markets MAY be of the same mindset, awaiting such an outcome and consolidate price until further evidence… MAY!
Tom Lee of Fundstrat does believe another -15% to -20% correction is in the S&P 500’s future and before surging to close the year around 7,700. The data DOES NOT agree that we can get a 15+% decline AND still close at 7,700 and here’s why:
There have been 21 years since 1965 that have had a –15+% decline (on a closing basis) and only 5 years that have gained more than 12.5% that calendar year. Only one of those 5 have their 15% decline in Q3 or later (1998 -which would be the case this year). And, only one of them ALSO had a 9+% decline that same calendar year separately and that was the COVID re-opening trade. NONE had BOTH a late correction and an additional deep pullback.
The average calendar year return for a year that had a 15+% decline is -5.25% with 14 losses (averaging -15.03% loss) and only 7 gains (with averaging 14.28% gain):
2025: +16.39%, 2022: -19.44%, 2020: +16.26%, 2018: -6.24%, 2011: -0.00%, 2010: +12.78%, 2008: -38.49%, 2002: -23.73%, 2001: -13.04%
2000: -10.14%, 1998: +26.67%, 1990: -6.56%, 1987: +2.03%, 1981: -9.73%, 1980: +25.77%, 1977: -11.50%, 1974: -29.72%, 1973: -17.37%,
1970: +0.10%, 1969: -11.36%, 1966: -13.09%.
Another reason why we wouldn’t agree with Tom Lee on the “-15+% decline then close the year at 7,700+ on SPX “ call is that we’ve NEVER had TWO years in a row having a 15+% decline and NOT have been in a bear market in that time (extended run below the 200-WEEK SMA). The only instances of consecutive years with -15%+ declines were, and all 3 were bear markets: 2000-02, 1980-81, 1973-74, and 1969-70.
I don’t envision the bull market ending, even as it serves to set a record as the month shortly turns to June. Indeed, this past week the bull market which originated in October of 2022 is now tied for the longest bull market in history not originating from a recession. Based on the trending macro-market data and forecast, it should set the record by mid-June as well (The Leuthold Group).
