March 28, 2022
Good morning,
Following a unusually strong move up in equity indexes two weeks ago and delivering two reasonably reliable short term breadth thrust buy signals in the process, equities followed through last week – for the most part. The S&P 500, NASDAQ and Russell 2000 were +1.81%, +1.99% and -0.38% respectively for the week.
This morning is a new week, but the themes in markets remain the same as yields rise, yield curves flatten and equities apparently watch an entirely different program from everyone else. Questions abound around how the equity market can possibly be rising given the Russian invasion, rising food and fuel prices, a hostile Fed raising rates, and another potential wave of Covid. Admittedly, it is quite a wall of worry.
However, we have had extreme pessimism that suggests a lot of negatives are priced in. In addition, it is tough to label the Fed as hostile with short-term rates rising to just 0.375% – where’s the bite in that? Usually, the Fed raises rates three times before the equity market stumbles. We have some good short term buy signals at work now. We do need to see more follow through and broader participation ahead to have any confidence that the rally the past two weeks is something more than that. We remain constructively walking on egg-shells.
For you data lovers, below is a study of crisis events from NDR:
Be well,
Mike