Since the start of the new year, the stock market has seen a sharp rise in the concern regarding the Fed’s plan to begin raising interest rates this year. What I find interesting is that this is not surprise news. The central bank has been reducing their bond-buying program for months and has been telling the market that they plan to begin raising short-term interest rates for most of 2021 to help combat inflation. Tech stocks have taken the brunt of this, however, the pain has been felt across the board.

It’s important to remember that the market typically experiences a pullback of at least 10% once every 12 to 18 months. The last one was in March of 2020 when the pandemic’s effects were just being realized. Given stocks’ strong performance over the last two years, it’s not unusual to see this drawdown.

With all that in mind, I read something over the weekend and wanted to share it with you. The American Association of Individual Investors (AAII) is a non-profit organization with about 150,000 members whose purpose is to educate individual investors about the stock market. The latest AAII sentiment survey saw just 20.96% of their members indicate they were bullish on the direction of the stock market over the next six months. These are very low results with only 17 other such readings since 1987.

Based on that information, what might we expect for the market? According to the chart below from Nasdaq Dorsey Wright, forward returns show the likelihood of weakness over the next few weeks. But, the returns tend to show stronger performance one-month or more away from the low readings. Moving one month out, the total return of the S&P 500 is positive about 59% of the time. That increases to positive returns 82% of the time when you look out three months from the sentiment’s low reading. That reading holds steady for six and nine months out and increases even more over the next couple of years.

The Markets and Economy China’s economy expanded 4% in the last quarter of 2021. That was the slowest pace since the beginning of the pandemic. Beijing also announced that the birthrate declined again in 2021. In response, officials cut two key interest rates to help spur economic growth. No wonder home prices continue to skyrocket. There were 1.53 million homes for sale in the U.S. as of 12/31/2018. Nearly three years later there were 1.1 million homes for sale nationwide as of 11/30/2021. In other housing news, home sales hit a 15-year high in 2021. The Nasdaq hit correction territory last week as it closed down 10.7% from its November high. A pullback greater than 10% is considered a correction for a stock index. Microsoft agreed to buy video game company, Activision Blizzard Inc. for $75 billion. This will help make Microsoft the world’s third-largest gaming company. Jobless claims are on the rise again. Businesses are contending with Omicron-related disruptions and an adjusted holiday post-holiday workforce. Puerto Rico received court approval to exit bankruptcy through the largest restructuring of U.S. municipal debt. The court ruling allowed for a $30.5 billion write-down of public debt. Americans borrowed a record $1.61 trillion from mortgage lenders in 2021 to purchase homes. That breaks the previous record of $1.51 trillion set in 2005. The figure only includes new purchases and not refinanced mortgages. The computer chip shortage has plagued businesses since the pandemic began. A stoppage in production due to Covid around the world has created the same backlog that the shipping industry faces with 100 ships off the coast of California. As chip producers ramp production back up, Intel has announced it plans to invest $20 billion in a new chip facility in Ohio. Currently, only 13% of total chip production in the world comes from the U.S. Offices in Chicago, Kansas City, St. Louis, Naples & Valparaiso. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results. Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Securities offered through Triad Advisors, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors.