Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
The market continues to show remarkable resilience this week. The S&P 500 is now up 17% from the June lows and has yet to sustain a significant pullback as the index reaches overbought levels.
In the news this week, US home sales dropped for the sixth straight month as the housing market continues to struggle. Meme stock shenanigan continue for Bed, Bath, and Beyond stock. And St Louis Fed president, James Bullard, stated that he’s leaning towards another 75-basis point increase in September for the Fed Funds Rate.
Over the last few weeks, there has been a split of technical vs fundamental signals in the markets with a deluge of positive signals from the stock market indices combined with negative signals from economic indicators. As an example, here’s a positive signal from the equal weight consumer discretionary index relative to the staples index. Since November 2021, this index has been in a downtrend indicating that investors are very risk-off for the high risk, high reward cyclicality of the discretionary stock. Since July, however, this index has broken through the downtrend indicating new appetites for riskier stocks.
A popular indicator making the rounds on social media is the 50% retracement. Earlier this week, the S&P 500 retraced half of the value lost during the bear market. No bear market in the history of the S&P 500 has ever retraced half it’s value and then gone on to make a new low.
However, several economic indicators are currently flashing red. The Leading Economic Index, when growth flips negative, has preceded 2 of the last 3 recessions. Currently, the index is teetering on another recession signal once again.
Likewise, the 10 – 2 treasury spread is still negative indicating that bond investors are very much nervous about a near term recession. This has also been a reliable indicator over the years. So to summarize, there are many positive signs in the markets but there’s still a few significant bearish signal that should concern investors.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved August 19, 2022, from FactSet Database.
2.FactSet Research Systems. (n.d.). S&P 500 equal weight consumer discretionary relative to equal weight consumer staples (Interactive Charts). Retrieved August 19, 2022, from FactSet Database.
3.FactSet Research Systems. (n.d.). S&P 500 with 50% Fibonacci retracement (Interactive Charts). Retrieved August 19, 2022, from FactSet Database.
4.The Conference Board. US Leading Indicators. “The long-term trajectory of the US LEI continued to decline in July.” Updated August 18, 2022. Retrieved from https://www.conference-board.org/topics/us-leading-indicators.
5.Federal Reserve Bank of St. Louis, 10-Year Treasury constant maturity minus 2-year treasury constant maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T10Y2Y, August 18, 2022
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The consumer discretionary sector comprises businesses that sell nonessential products and services that consumers may avoid without any major consequences to their well-being.
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