After showing weakness last week and creating some bearish-looking technical formations, stocks took a turn for the better on Monday. Perhaps it was renowned value investor Warren Buffett breaking from his usual aversion to tech companies and investing $1 billion in Apple (AAPL) that gave bulls a much-needed shot of confidence. But then things went south again on Tuesday, and some commentators are surmising that the strength in some of the economic data makes investors think the Fed is more likely to raise rates, i.e., we may be back to a good-news-is-bad-news reactionary environment.

Year-to-date, Utilities is the top-performing sector, up +12.6%, while Healthcare and Technology share the laggard tag at -4.2%. However, since the market recovery that began on February 12, Energy and Materials have been leading the way in something of a bottom-fishing speculative frenzy. Notably, gold has been quite strong YTD, but has lagged during the stock rally off the February lows. Typically, such recovery rallies initially are led by a combination of short-covering, oversold bottom-feeding, and speculative “junk” rallies before gradually rotating into higher quality names and improving market breadth, which we are starting to see.

Looking forward, although there are many variables in play and many global uncertainties, for the near term I see improving global stability, rising oil prices, modest inflationary pressures on wages and prices, and the prospects for low double-digit stock market returns — although we might see a good bit of sideways price action for next few months.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas.

Market overview:

On Tuesday, the April CPI came in slightly above expectations at +0.4%, which led to hawkish commentary from some FOMC members. Over the past 12 months, CPI is up +1.1% on an unadjusted basis, while Core CPI is up +2.1%. Retail sales surged 1.3% in April, led by autos and non-store retailers (internet and mail-order). Automakers have reported US sales of 17.6 million cars and light trucks during the past year, which is near the record high.

Oil closed Tuesday at $48.45, which is a 7-month high and marks an 85% move off its February lows near $26. Resistance at the October high of $50.90 may soon be tested. However, much of the increase has been due to declining production and trader speculation, given that the oversupply has not really been that much more than demand, which continues to grow. On the other hand, oil inventories are nearing capacity while some producers are increasing their production plans.

However, fed funds futures still are indicating only a 15% probability of a rate hike in June, but it rises to 33% probability in July, and then 49% for at least one hike by September, and 71% probability of at least one rate hike by December (and 29% chance of two rate hikes).

The 10-year yield closed Tuesday at a 1.76% while the 2-year closed at 0.83%, which shows a spread of 93 bps. Thus, it has broken below the 100 bps threshold, which often indicates impending recession, whereas a steepening yield curve generally indicates accelerating economic growth. However, given the current global economic conditions characterized by sluggish growth, abundant liquidity, and ultra-low interest rates, it is more an indication that global investors are simply choosing the high-probability “carry trade” of borrowing cheaply at home to acquire strong US dollars and buying higher-yielding US Treasuries.

More than 90% of the S&P 500 companies have now reported Q1 earnings results, and the total earnings growth rate seems to be locked in at -6.0%, which is better than the -8.3% forecast from mid-April 13. Only three sectors — Consumer Services (Discretionary/Cyclical), Telecom, and Healthcare — have provided positive year-over-year growth, while four sectors are soundly in the negative (led by Energy, which had only 14% of its companies beat analyst estimates) and three are essentially flat. This was the third quarter in a row to show a decline in earnings growth, largely due to a strong dollar and weak commodity prices (including oil). Excluding the Energy sector, Q1 EPS growth came in at -1.4%, which is actually better than the -3.8% consensus estimate. Notably, US companies increased their dividends by an average of 4.6% during Q1.