What Stocks Will Do After Memorial Day

Last week, I discussed why I like three dividend-focused ETFs, all of which are in my ETF model portfolio. That post was on my blog at Seeking Alpha, to which I no longer have access for writing articles. Why? As I stated last week, I am in the process of closing my two cannabis-related services, 420 Investor and New Cannabis Ventures. While NCV remains open, 420 Investor closed. With the closure, I can no longer post new posts to the blog, which I launched in 2009. I love Seeking Alpha for a lot of reasons, but I haven't yet discussed this with them. So, I have moved it to this Wix-hosted website.

A Look at the Market

Stocks extended their bounce this week further this week.The State Street SPDR S&P 500 ETF (SPY) has increased in price by 9.3% and has returned 9.6% with dividends. Bonds remain under pressure, with iShares Core US Aggregate Bond ETF (AGG) now returning -0.1% with dividends included.

Treasury yields rose across the yield curve. Here is an updated look that shows the changes over the pat month and year:

Bloomberg is the source of information

As I have discussed previously, inflation concerns have picked up again. The surge in oil prices since the end of February has been the main driver, and the data that has followed reinforces the inflation risk. This week, Kevin Warsh was sworn in as the new head of the Federal Reserve. He had been anticipated to be moving towards lower Fed Funds when he was nominated in late January, but investors now think the next move could be an increase. The current rate of 3.50-3.75% for the target, which was set in December, is now expected to be higher according to StreetStats.

While the increase is not that dramatic, what stands out is that the Fed Funds are no longer expected to drop .

Now, looking at stocks, there was an unusual move early in the year, and the Q1 returns were very different in the Q2 returns so far. Right out of the gate, smaller beat larger, and value beat growth. Here are the year-to-date total returns for several ETFs that I follow along with the Q1 and Q2-to-date total returns:

iShares Semiconductor ETF (SOXX) just goes up and up. The other sectors have been mixed, with the big winner in Q1, State Street Energy SPDR ETF (XLE), pulling back alone among these ETFs since the end of Q1. Two of the sector ETFs that I included are quite large in the S&P 500 but are down in 2026. Both were very weak in Q1 and are lagging the rally in Q2. The largest sector, State Street Technology Select Sector SPDR ETF (XLK), was weak in Q1 but has soared in Q2. The theme in Q1 was that the five largest sectors of the S&P 500 were the weakest. This is what helped Invesco S&P 500 Equal Weight ETF (RSP) outpace SPY in Q1.

The size focus is demonstrated by looking at the Russell 2000 for small-caps and the S&P 400 for mid-caps, and both of these parts of the market rallied in Q1. I think that it is impressive how well the R2000 has done in Q2 so far, outpacing the S&P 500.

Looking now at "growth" vs. "value", Q1 was better for large-cap value than large-cap growth, but Q2 has seen a reversal as growth has surged.

I am happy to answer any questions here, and I encourage any readers to see my Seeking Alpha articles, where I have been writing about ETFs under the alias The Intelligent ETF Investor for a while now. This week I published several articles, with the initial two negative. the third one positive (and foreshadowed here last week) and the last one modestly negative. Here they are by title:

1. VGT And XLK: Why I Am Downgrading Them

2. VUG: How It Could Get Ugly For This ETF

3. NOBL Is A Noble ETF That Makes Sense At Its Current...

4. XSW: I Still Like It But Am Downgrading This ETF

After the tumultuous market so far this year, the big question for investors now (and always) is this: What lies ahead?

Before I attempt to answer this, allow me to say that I do not KNOW. Nobody does! My outlook for bonds remains negative, and I have been negative on stocks for way too long.

All four of the articles that I published at Seeking Alpha this week were based on the same scenarios:

1. The market keeps rallying. (20% probability)

2. The market sells off sharply. (30% probability)

3. The market holds relatively steady, but Technology is pressured. (50% probability)

Q2's action fits with the first scenario. While I don't think the market keeps rallying in the way that it has, it certainly is possible. In this scenario, AI stays hot, interest rates don't rise, and the economy continues to grow.

The sell-off from the end of February into March (due to the Iran war) was sharp, and it wasn't the first big sell-off recently, as the market pulled back sharply eleven months earlier due to the tariff situation. "Buy the dip" sometimes work, but investors should be careful to not assume that it always works. The very big problem we have right now is our federal debt, which historically has been fixed by other countries with currency devaluation that leads to inflation. The tariffs and the war with Iran both contribute to inflationary pressure. The sharp sell-off is overdue perhaps, though we have had two relatively recently. The difference is that buying the dip might not work this time.

My largest probability scenario is a softer correction that my negative scenario. In this one, Technology pulls back, and investors shift into other sectors. I expect that "value" will be in demand over "growth" in this scenario. I also expect that the shift from large-cap to smaller stocks in Q1 will happen again.

As I said, I don't know the future. The probabilities that I am assuming may be incorrect. What stands out to me is how a very few stocks (the Magnificent 7 or the Elite 8) have pushed the S&P 500 so much higher since the end of 2022. These are not all Technology stocks, though several are.

So, I am expecting stocks to weaken. However things shake out, I wish my readers here and at Seeking Alpha the best!

ETF Model Portfolio Update

This ETF model portfolio, which is measured against 60% SPY and 40% AGG, is up relative to its benchmark. This week, I did several trades, which were published on here instead of on my Seeking Alpha blog.

Going into the week, my equity exposure totaled 37.2%, spread out across four ETFs. Here is what I did this week (which I kind of foreshadowed in the update a week ago):

• Tuesday: I reduced State Street Utilities Select Sector SPDR ETF (XLU) and increased ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL) again.

• Wednesday: I reduced XLU further but this time increased ProShares S&P 500 Dividend Aristocrats ETF (NOBL).

• Thursday: I did Wednesday's trade again, exiting XLU.

Here is the current model portfolio, which now has 37.8% equity exposure in three ETFs and fixed income exposure in three ETFs that totals 62.0%:

I have been wrong this year, at least so far, as stocks keep rallying. Despite being underweight stocks all year, my return relative to the 60/40 index is higher. This is not due to superior returns on my current equity ETFs, as the very best one, SMDV, has increased in price by 9.1%. My TIPS have done okay relative to AGG, but they aren't exactly boosting the return. VGSH isn't helping too much either. So, what has it been? I have had positive returns from two ETFs that I no longer hold, and there has been some good trading. I plan to give a performance attribution after the end of Q2 for this quarter.

How Can I Help You?

I enjoy analyzing ETFs and stocks, and I like sharing my thinking in writing. I am working on starting a subscription service at Seeking Alpha. What things would you as an investor like to see offered?

If you are an investment professional, I would like to work with you as well. I can help educate financial consultants about the ETFs, and I can work with management at investment firms to help create model portfolios or potential ETF investments. Please let me know if your firm would be interested in this.

My ETF articles at Seeking Alpha, written under the alias The Intelligent ETF Investor, share a lot of my ideas.