Investors expect rally in U. S. stock market due to strong labor market
2023.02.05 12:33
Investors expect rally in U. S. stock market due to strong labor market
By Kristina Sobol
Budrigannews.com – Despite concerns that the Federal Reserve’s monetary policy tightening may send the economy into a recession, investors in U.S. stocks are taking heart from a variety of market signals pointing to a positive year for Wall Street.
A “golden cross” chart pattern on the and a greater number of stocks making new highs rather than new lows are among these factors.
Market participants use a wide variety of indicators to make investment decisions, and none of them are 100% accurate. Poor prospects for major corporations like Amazon (NASDAQ:) likewise Microsoft and despite the fact that the S&P 500 is still up 7.7% year to date, a record employment number on Friday added to market uncertainty and raised expectations for Fed hawkishness.
After the S&P 500 experienced its biggest annual percentage drop since 2008, which was 19.4%, steady improvements in gauges of momentum and sentiment in recent weeks reinforced the belief of some investors that asset prices may be heading for a more benign period.
The Carson Group’s chief market strategist, Ryan Detrick, stated, “We think this is a healthy picture that is being painted here,” referring to indicators like January’s gains and the variety of sectors participating in the rally.
In January, hopes that the Federal Reserve will be able to contain rising inflation without seriously harming the economy contributed to a 6.2% increase in the S&P 500.
According to CFRA Research’s analysis of data going back to World War II, the market has gone on to rise in the following February-December period 83% of the time when the S&P 500 has advanced, with an average 11-month gain of over 11%.
However, after a down year in January, there was a gain of 23.1% from February to December, with a success rate of 92%.
“The track record suggests that maybe we do have some upside potential,” stated Sam Stovall, chief investment strategist at CFRA Research, despite the recent rally that may have made stocks relatively expensive.
In the meantime, chart watchers noticed that on Thursday, the S&P 500’s 50-day moving average rose above its 200-day moving average in a pattern known as a golden cross.
According to Adam Turnquist, chief technical strategist at LPL Research, the S&P 500 has experienced an average 12-month return of 10.5% since the formation of a golden cross, while the overall average annual return since 1950 has been 9.1%.
The S&P 500’s average 12-month return, on the other hand, rises to 16.8% when a golden cross appears while the 200-day moving average is falling, as it is right now.
Turnquist wrote in a post, “The recent golden cross adds to the growing technical evidence of a trend change for the S&P 500 and further raises the probabilities that the bear market low will be set in October.”
Willie Delwiche, an investment strategist at All Star Charts, stated that all five of the indicators on his checklist for the bull market were met in January. These indicators included upside volume and risk appetite metrics, which were not present in 2022.
One of those indicators showed that more stocks on the Nasdaq and New York Stock Exchange made new 52-week highs than lows, indicating that the rally is being led by a variety of stocks rather than a small group of heavyweights. According to Delwiche, that occurred as frequently in January as it did throughout 2022.
Stocks, on the other hand, may have gotten ahead of themselves, according to some investors.
The employment growth rate in the United States increased sharply in January, according to data released on Friday, reinforcing the inflation concerns that shook stocks last year and sparked bets on a more hawkish Fed.
Analysts at Citi wrote, “The January employment report was unmistakably strong and should be the start of a series of data points showing stronger activity and inflation in early 2023.” We anticipate this emerging trend to counteract pricing that is too dovish in the market.”
