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By Saqib Iqbal Ahmed and Lewis Krauskopf
NEW YORK (Reuters) – U.S. stock bulls take heart from a series of market signals pointing to an upbeat year for Wall Street as stocks post impressive gains despite concerns that US monetary policy tightening the Federal Reserve could plunge the economy into a recession.
Among these are the positive performance of stocks in January, a “golden cross” chart pattern on the and more stocks posting new highs instead of new lows.
These signals are far from the only indicators that market participants use to make investment decisions, and they are not foolproof. Weak prospects for corporate heavyweights such as Amazon (NASDAQ:) and Microsoft (NASDAQ:) and an explosive jobs number that raised expectations for the Fed hawk injected a fresh note of uncertainty into markets on Friday. although the S&P 500 is still up 7.7% year-on-year. till the date.
However, steady improvements in momentum and sentiment indicators in recent weeks have reinforced the view among some investors that asset prices may be heading towards a more benign period, after the S&P 500 lost a year last year. 19.4% in its biggest annual percentage drop since 2008.
“We think this is a healthy picture being painted here,” said Ryan Detrick, chief market strategist at Carson Group, referring to signs such as January earnings and the wide range of sectors participating in the rally.
JANUARY JUMP
The S&P 500 rose 6.2% in January, buoyed in part by hopes that the Fed can contain rising inflation without seriously hurting the economy.
When the S&P 500 advanced in January, the market continued to rise in the subsequent February-December period 83% of the time, with an 11-month average gain of more than 11%, according to an analysis of data dating back to World War II. World by CFRA Research.
However, a rising January after a year down was followed by a 23.1% gain from February to December with a 92% success rate.
Despite a recent rally that may have made stocks comparatively more expensive, “the track record suggests we may have some upside potential,” said Sam Stovall, chief investment strategist at CFRA Research.
GOLDEN CROSS
Meanwhile, chart watchers noted that the S&P 500’s 50-day moving average broke above its 200-day moving average on Thursday, a pattern known as a golden cross.
Since 1950, the S&P 500 has produced a 12-month average return of 10.5% after a golden cross formed, while the overall average annual return since 1950 is 9.1%, according to Adam Turnquist, technical strategist. head of LPL Research.
However, when a golden cross appeared when the 200-day moving average is declining, as it is now, the 12-month average return for the S&P 500 jumps to 16.8%.
“The recent golden cross adds to mounting technical evidence of a trend reversal for the S&P 500 and further increases the odds that a bear market bottom will be set in October,” Turnquist said in a post.
IMPROVING INTERNAL
Willie Delwiche, investment strategist at All Star Charts, said all five indicators on his bull market checklist were met in January, including bull volume and risk appetite metrics, something that hasn’t happened once in 2022.
One such gauge showed more stocks on the New York Stock Exchange and Nasdaq hitting new 52-week highs than lows, a sign the rally is being led by a broad range of stocks, rather than a group of weights. heavy. That happened as many times in January as it did in all of 2022, Delwiche said.
However, some investors believe that the actions may have been brought forward.
Data on Friday showing that US job growth accelerated sharply in January renewed the inflation concerns that battered stocks last year and ignited bets on a more hawkish Fed.
“The January jobs report was unequivocally strong and should be the start of a series of data points showing stronger activity and inflation in early 2023,” the Citi analysts wrote. “We expect this emerging trend to push back overly dovish market prices.”