Top 5 Essential Market Charts to Monitor in May 2019

April delivered strong gains for equity markets, with U.S. stocks surging and both the Nasdaq Composite and S&P 500 briefly achieving fresh all-time highs, surpassing records set last August and September.

In other key sectors, government bond yields climbed from their late March lows, buoyed by robust U.S. economic data that has fueled expectations of a more hawkish Federal Reserve stance than seen recently.

These same factors signaling a stronger economy have propelled the U.S. dollar upward. In April, the dollar index neared a two-year peak.

Meanwhile, the strength of the dollar combined with soaring equity markets has pressured gold prices downward. Since peaking in February, gold has declined by nearly 5% by the end of April.

China’s markets remain under the spotlight as the U.S.-China trade negotiations edge closer to resolution. The Shanghai Composite kicked off April with strong momentum but retreated sharply as the month closed.

Looking ahead to May and beyond, the dominant macroeconomic themes will revolve around U.S. and global growth, the Federal Reserve’s monetary policy direction (noting the next FOMC meeting is mid-June), the trajectory of the U.S. dollar, and the potential finalization of a U.S.-China trade agreement.

Presented here are our monthly “Top 5 Market Charts to Watch” — key indicators and instruments expected to be significantly influenced by these factors in May.

Nasdaq Composite Index

The Nasdaq Composite, a major U.S. benchmark with a technology-heavy weighting, reached a new record high near 8176 in April. Although the index saw a slight pullback in early May, a strong rally on May 3rd nearly erased those losses.

Over the longer term, Nasdaq is in a robust uptrend since late December lows. It dipped slightly below this trendline at the start of May but is expected to regain momentum if the bullish momentum persists.

In early April, the Nasdaq formed a 'golden cross'—a bullish technical signal where the 50-day moving average crosses above the 200-day moving average.

While short-term pullbacks are possible in May, the prevailing momentum favors gains. A new all-time high could accelerate this upward trend.

U.S. 10-Year Treasury Yield

At the end of March, the U.S. 10-Year Treasury yield hit a multi-year low of 2.34%, a level not seen since December 2017.

April brought a rebound in yields, driven by strong economic data. Should the economy continue to show strength, the likelihood of Fed rate cuts diminishes, potentially pushing yields higher. Fed Chair Jerome Powell’s comments on May 1st discouraged expectations of imminent rate reductions.

If this trend continues, yields could climb back toward the 2.80% range. However, persistent low inflation despite economic growth remains a key uncertainty that could keep yields subdued.

U.S. Dollar Index

The U.S. dollar index measures the greenback’s strength against a basket of currencies, with the euro as the largest component.

Despite the Fed pausing rate hikes earlier this year, the dollar has gained strength due to solid U.S. economic data, a weakening euro, and other macroeconomic factors. Since early 2018, the dollar index has trended sharply higher.

If U.S. economic momentum persists and the Fed remains cautious about easing, the dollar index could soon surpass April’s near two-year high of around 98.30.

Gold

Gold prices continue to decline from their February highs, maintaining a well-defined downtrend as of early May. The rising U.S. dollar and buoyant equity markets have weighed on this precious metal.

Since gold is priced in U.S. dollars, it typically moves inversely to the greenback. Additionally, as a safe-haven asset, gold has seen less demand amid increased investor risk appetite.

If the dollar and stock markets keep climbing, gold could face further downside pressure. Currently, gold is testing a key uptrend line dating back to August 2018. A break below this support could push prices toward the 200-day moving average and the $1240 support level.

Shanghai Composite Index (SSEC)

The Shanghai Composite is China’s leading equity benchmark, encompassing all stocks on the Shanghai Stock Exchange, the country’s largest exchange.

After a strong start to April, the index retreated sharply toward month-end and has since touched its 50-day moving average in early May.

With the U.S. and China nearing a major trade agreement, China stands to gain more from the deal. Positive developments could spark a robust rebound in Chinese stocks following the recent pullback.

Overall, the Shanghai Composite remains in an uptrend from early January lows. Provided it holds above the 50-day moving average, the index is positioned to recover and push toward higher levels.

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