Move over Cal Ripken. Forget baseball, the market is on an even more remarkable run.
Besides breaking records on Tuesday, the S&P 500 also finished its sixth consecutive quarter on the plus side. According to data compiled by Bespoke Investment Group, that was the sixth time that has happened since 1928. And, five times out of six, the S&P was up the following quarter as well. With the S&P 500 at fresh all-time highs, will it be six times out of seven?
Gina Sanchez, founder of Chantico Global, didn’t expect the S&P 500 to end in positive territory during the second quarter of 2014.
“I was expecting a correction, but I was expecting it more in the spring time frame,” said Sanchez, a CNBC contributor. With the summer doldrums beginning, Sanchez doesn’t see much out of the markets. But, that may change with the weather.
“As we move toward the fall, talks of rate-normalization will be in the air, and growth has been revised down,” Sanchez said. “At some point, earnings expectations are going to have to fall, and PE’s are going to have to fall to justify those future earnings expectations, or we’re going to have to see an tick-up in growth expectations. One of those two has to happen, because right now, we are extended in terms of valuation.”
The market is vulnerable, said Sanchez. “While the market continues to make fresh new highs, it is on shaky ground,” she added. “We just aren’t really trading on fundamentals.”
Mark Newton, chief technical analyst at Greywolf Execution Partners, agrees with Sanchez. “This has been the third longest rally of all time without a 20 percent correction, second only to the 1990s and the 1920s,” he said. “It’s tough to think we can continue to extend this trend.”
While Newton doesn’t see signs of technical deterioration to warrant shorting the market, he thinks there are a couple of problems ahead for the S&P 500, including some contrarian indicators.
“We’re starting to see signs of negative divergence; the indices have pushed higher yet momentum is failing to match these moves to new highs,” Newton said. “Sentiment has also got incredibly enthusiastic and really ebullient over the last few weeks, and that’s also an issue.”
Newton also worries about seasonality and the fact that defensive stocks have been leading other sectors this year. “We’re also as extremely overbought as we have been since 2007,” Newton added. “Despite the fact the indices have pushed higher, momentum is really not at the level we’ve seen since last December.”
Investors should be careful, cautions Newton. “It’s really important to be selective here,” he said. “The third quarter should prove to be down before any progress on the upside can be made. “
To see the full discussion on S&P 500, with Sanchez on the fundamentals and Newton on the technicals, watch the above video.