A number of signals in my models are starting to turn, not dramatic, but enough to tell me markets are getting more challenging in the short term. On the surface, things still look fine. Wall Street pushed to new all-time highs in April, helped along by small caps and a solid Q1 earnings season. Yes, April was the best one-month return for the S&P 500 since November 2020. Everyone cheered.
Now we are heading into Q2 with a slightly different backdrop, energy prices are creeping up again and bond yields are pushing higher. Not the kind of combination that makes life easy for markets.
I have been spending more time behind the screens than I would like, making sure we do not get pulled into reacting to every headline that pops up. These are the periods where things looks quiet on the outside, but the real work is being done underneath.
Cautious on risk assets heading into Q2 and we are repositioning accordingly so that we could sleep peacefully at night especially for conservative models designed for investors with a lower risk profile.