Published February 9, 2024
Technical analysts are rolling out any number of reasons why the stock market is due for a significant pullback. There’s the seasonal weakness that February often brings. There’s declining breadth data – e.g. fewer and fewer stocks showing strength. There’s the Relative Strength Indexes putting the market is notably “overbought” territory after a torrid three-month rally. There is no question the market will pull back at some point. It has been higher for an astounding fourteen weeks out of the last fifteen – an extraordinary move.
Yet, the stock market has only been recovering the 2022 drop, just recently moving to new highs. There is plenty of data to suggest that we have much further upside ahead. That data is shown below, beginning with a summary from Delta Research followed by the very high level of “dry powder” on the sidelines yet to come into the market.
The market will pull back one of these weeks. We are interested to see what that pullback looks like.
Here’s a summary of the data from Delta Research:
And some charts showing the upturn in economic data and large amounts of cash on the sidelines – fuel for future bullishness.
Market Update
A report noting faster than expected growth in the service sector sent interest rates upward Monday pushing stocks down -0.3%. Investors have been riding a furious bull rally since November as markets have become convinced of a “soft landing” in the economy – e.g. no recession with tame inflation. The only hiccup of late has been words from Fed Chair Powell that a near-term cut in Fed rate policy is unlikely. In further positive economic news Monday, global equipment giant Caterpillar beat earnings and saw shares advance. Tuesday saw stocks mostly recover the Monday dip, however, as Chinese shares found bidders when the government undertook measures to shore up the country’s beleaguered stock market. Since peaking in early 2021, Chinese stocks have slumped more than -50%. U.S. stocks continued their rise Wednesday, up +0.8% as the S&P 500 pushes toward the 5000 level. Stocks were flat Thursday though the earnings news was generally good. Companies from Disney to semiconductor firm ARM to food maker Hershey all reported earnings above estimates and saw their shares vault upward. The S&P 500 closed above 5000 for the first time Friday as Microsoft became the most valuable stock in the history of the market. The broad market clipped higher by +0.6% while interest rates have jumped back above 4% on the 10-year note.
The stock market’s seemingly endless string of positive weeks continued this week with the S&P 500 crossing the 5000 mark for the first time. The index (SPY) rose +1.39% for the week, its fifth straight week upward with fourteen of the past fifteen weeks showing a gain. The Nasdaq 100 (QQQ) gained +1.87%. Smallcaps (IWM) recovered the prior week’s loss with a +2.54% rise. Smallcaps are the only major domestic index without a gain so far in 2024.
Warm wishes and until next week.