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May 1, 2018

U.S. stock indexes sagged a bit on the last day of the month, showing once again that the market can't find traction despite a strong earnings season. Meanwhile, the Federal Reserve is set to begin a two-day meeting Tuesday.

The major indexes have been encountering resistance at their 50-day moving averages lately. If the stock market is to shake off the negative pressure, retaking the 50-day Moving Average line is an important first step. Among market watchers, the recent concern is the narrowing of the spread between the 10-year yield vs. the 2-year yield. But the problem with using the yield curve for market guidance is that recessions typically haven't begun until 20 months after the curve inverts.

Several items stand ready to break for either good or bad. First, banks are now expected to win at least a partial battle against some Dodd-Frank regulations. The Hill reported that Congress is near passage of a bipartisan package. Second, a decision on steel tariffs is near and temporary exemptions for the European Union are about to expire. President Trump reportedly hasn't made a decision. Also, Treasury Secretary Steven Mnuchin is expected to leave for China soon for trade talks. Third, IBD's industry group lineup has taken definition. Going into Monday's session, only 10 sectors are outperforming the Nasdaq. New leaders could emerge from the outperforming sectors. Fourth, Trump implied that he can save the market. Speaking in Michigan recently, Trump admitted he is doing something that "bothers the market." He said the stock market "would've been up 60%, but I have to do things. I can't let other countries take advantage of us, so we're doing trade deals." The implication is that the market will recover once Trump finishes doing things that bother the market.

Year to date the Dow and the S&P 500 are down 2.25 and 0.96 percent respectively while the NASDAQ is ahead 2.32 percent. The 10 year Treasury is currently yielding 2.92 percent.