Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; Editing by News Gate Team
Reuters, NEW YORK, Feb. 3 – Despite concerns that the Federal Reserve’s tightening of monetary policy may cause the economy to enter a recession, a number of market indicators are pointing to an optimistic year for Wall Street, giving U.S. stock bulls hope. Equities are sitting on substantial gains.
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A “golden cross” chart pattern on the S&P 500 and more stocks making new highs than new lows are a few examples of these optimistic equity market trends.
These signals are by no means the only ones that market players consider when making investment choices, and they are not infallible. The S&P 500 is still up 7.7% year to far, but weak outlooks for corporate giants like Amazon and Microsoft as well as a huge employment report that raised expectations for Fed hawkishness added a new layer of uncertainty to the markets on Friday.
After the S&P 500 lost 19.4% last year, its largest annual percentage decline since 2008, some investors believe that asset markets may be headed for a more benign period. However, persistent gains in momentum and sentiment indexes in recent weeks have supported this belief.
With confidence that the Fed will be able to control rising inflation without seriously harming the economy, the S&P 500 increased 6.2% in January.
According to a review of data going back to World War II by CFRA Research, the market has increased when the S&P 500 has climbed in January 83% of the time, with an average 11-month gain of almost 11%.
However, an increase of 23.1% from February to December with a 92% success rate followed an up January following a down year.
Sam Stovall, chief investment analyst at CFRA Research, stated that despite a recent rise that may have rendered equities somewhat pricey, “the track record says that maybe we do have some upside potential.”
GLOBAL CROSS
Chart observers also noticed that on Thursday, the S&P 500’s 50-day moving average crossed above its 200-day moving average, forming a phenomenon called a “golden cross.”
According to Adam Turnquist, chief technical strategist at LPL Research, the S&P 500 has delivered an average 12-month return of 10.5% since 1950 following the formation of a golden cross, while the overall average yearly return since 1950 is 9.1%.
However, the average 12-month return for the S&P 500 increases when a golden cross appears when the 200-day moving average is decreasing, as it is at the moment.
However, the average 12-month return for the S&P 500 increases to 16.8% when a golden cross has emerged while the 200-day moving average is falling, as it is at the moment.
Turnquist wrote in an article that the latest golden cross “adds to the mounting technical evidence of a trend change for the S&P 500 and significantly raises the likelihood of the bear market low being reached in October.”
ADVANCEMENT OF INTERNALS
Willie Delwiche, an investment expert at All Star Charts, claimed that in January all five criteria for a bull market had been met, including the measures for upside volume and risk appetite, which had not happened once in 2022.
One of those indications revealed that more companies on the New York Stock Exchange and Nasdaq were reaching new 52-week highs than lows, indicating that a variety of firms, rather than a small group of heavyweights, are driving the rally. According to Delwiche, that occurred as frequently in January as it did in the entire year 2022.
However, other investors think the stock market may have overextended itself.
The figures released on Friday indicating a strong acceleration in U.S. employment growth in January rekindled the inflation worries that wrecked equities last year and sparked wagers on a more hawkish Fed.
According to analysts at Citi, “the January employment report was unquestionably good and should be the start of a series of data points reflecting greater activity and inflation in early 2023.” “We anticipate that this new tendency will push back against excessively dovish market pricing.”
Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; Editing by News Gate Team
