January 2023 was a very strong month in financial markets. Interest rates came down, which fueled a nice bounce in stock values. Most importantly, the stock market, as measured by the S&P 500, finally broke the downtrend it has been in since the start of 2022.
The blue line in the chart below shows that downtrend and how that trendline served to stop rallies in stocks on 4 different occasions during 2022 (red circles). In mid-January we finally broke through that trendline. We got a bit above it, then came back down to it towards the end of January but did not drop below it. In technical analysis, this is known as “polarity”, when former resistance turns into support.
Based on this break of the downtrend line, I am now reasonably confident that we have had a change in trend from downtrend to uptrend. This doesn’t mean go straight back up, but rather we likely stair-step our way higher as the year progresses. I fully expect pullbacks in stocks but as long as the S&P 500 stays above 4,000, I think the most likely direction for 2023 is up.
Risks still exist. While inflation has slowed, it is still too high. The jobs market and economy remain strong, which may force the Federal Reserve to continue raising interest rates. And let’s not forget the nonsense in Washington over the debt ceiling.
We have been adding to equity allocations in portfolios based on the change in trend. We continue to monitor conditions in the markets and economy and will adjust accordingly.
I hope you find this report helpful. Please feel free to share it with family, friends and colleagues.
February Calendar of Events (comments and additions for future months are always welcome)
- February is Black History Month. Let’s all strive for understanding and acceptance for people of all colors, nationality, and religions.
February 2nd Groundhog Day – Damn he saw his shadow
February 12th Super Bowl Sunday - who are you rooting for?
February 14th Valentine’s Day
February 20th Presidents Day
Sources: StocksCharts.com
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