Major US indexes at all-time highs across the board

We’re starting off this week with a 30,000 ft. view of the market. Understanding your environment and the longer-term trends are paramount to sound investing, regardless of how short or long your time horizon may be.

Looking first at the S&P 500, the large-cap benchmark closed last week at all-time highs, and just recently broke out from six months of sideways action. There are a lot of ways to measure trend, but if we’re at all-time highs, you rarely need any more information. This is an uptrend that must be respected, no matter what may be going on under the surface.

Sponsor Message From Author, Scott Brown, CMT:

How bad can breadth be if the Russell 2000 is at all-time highs?

I’ve had some issues with breadth since the market bottomed on March 30, and as we may show later in the week, the daily numbers have been incredibly underwhelming. But it’s also hard to make too much of a stink when the Russell 2000 is also at all-time highs.

The IWM ETF has more than 1900 holdings and only one stock currently has more than a 1% weight. More important looking forward, IWM recently broke out from a four-year base and looks to have successfully retested that breakout. The $325 measured target implies upside that could continue well beyond this year, and the index is in a relative uptrend vs. large caps.

A huge triangle hangs in the balance for rates

Turning to fixed income, the US 10-year Treasury yield has spent the last three years searching for direction. There’s a reasonable case to be made from this long-term view that the next move “should” be higher. But, guessing at the chart is no way to invest.

For now, investors should recognize that a trading range has developed, and in contrast to a traditional trend-following strategy, mean reversion is what is working now. Moves up in rates are opportunities to extend duration, and moves lower are opportunities to reduce duration and/or fixed income exposure broadly.

DXY’s trading range crosses the one-year mark

Finally, another global benchmark that has been rangebound and developed a directionless trend is the US Dollar Index. DXY crashed below prior support at 101 amid the barrage of tariffs in April of last year. But since then, the dollar has traded in a five-point range from roughly 96-101.

It won’t last forever, but steady interest rates and a rangebound dollar are likely tailwinds to a secular and tactical bull market in equities that hasn’t stopped yet.

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