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Market Rallies for Third Week

The stock market posted its best three-week run since November 2020. The sharp rise last week was fueled by hopes the Fed may be nearing the end of its aggressive interest rate increases as well as stronger than expected corporate earnings. The three major indices closed up around 5% on the week.

It is expected the Fed will increase short-term interest rates another 0.75% in November. At that point, the central bank will begin discussing future actions. Fed governor Christopher Waller was quoted as saying “We will have a very thoughtful discussion about the pace of tightening at our next meeting.” Since it takes time for the economy to digest the effects of interest rate increases, the Fed may want to see what impact the rate increases already implemented have on cooling inflation.

I’ve received a few calls from clients about the market actions at the end of September and beginning of October. Their concern was focused on the S&P 500 breaking below what is considered to be a significant support level, the 200-week moving average. Interestingly, this major support line has been violated several times over the last few decades only to mark the beginning of a new rally.

According to Nasdaq Dorsey Wright, our main source for technical research, in March 2020, the S&P 500 broke below the 200-week moving average and continued dropping another 300 points before making a V-shaped recovery, overtaking the 200-week moving average in quick fashion. As we all know, the market made a full recovery and hit a new all-time high about six-months after hitting the bottom (see chart below).

In contrast, during the Dot-Com Crash and the Global Financial Crisis, the S&P 500 broke below the 200-week moving average and then rallied just above it before reversing downward again to make a new low. In both instances, the S&P 500 spent enough time below the 200-week moving average that the moving average actually began slopping downward. You can see this in the green line below during both of these major market events noted on the chart. It took the market several years to reach and exceed its previous high.

Of course there’s no way to know for certain where the market will go from here. However, the fact that the S&P 500 found support at or near the 200-week moving average is at least a hopeful sign the market may be regaining its footing. It should be noted that further recovery from here would add confirmation.

If you have any questions, please contact me.

The Markets and Economy

 

  • The K.’s new Treasury Chief, Jeremy Hunt took an axe to nearly all of the government’s proposed tax cuts. He also has pared back an energy price-cap subsidy as he works to reassure markets about the stability of the nation’s finances. Inflation is now up 10.1% for the most recent 12 months period. A couple of days later on Thursday, Liz Truss resigned as prime minister. The 45 day tenure marked the shortest-serving in U.K. history.

 

  • More Americans are starting a new business. New business applications hit an all-time high in 2021 with 5.36 million. That tops 2020’s record of 4.35 million.

 

  • What goes up must come down. According to the Wall Street Journal, a majority of economists believe the Fed will start cutting interest rates in late 2023 or early 2024.

 

  • Microsoft is the latest tech company to announce layoffs. The company said it would cut a number of positions affecting less than 1% of its total workforce. That amounts to approximately 2,000 employees.

 

  • According to Fannie Mae, less than one in five Americans in April 2022 believe it’s a good time to buy a home in today’s market. That’s not surprising as mortgage rates that were at 3% last year have shot up to 7% today. Homebuilders are reporting that during October, traffic of prospective buyers is as depressed as it was during the 2020 pandemic.

 

  • The Internal Revenue Service said it will adjust tax code parameters for 2023 to reflect higher inflation. Tax brackets and the standard deduction will increase by 7%.

 

  • The integrity of economic data in China has long been a question mark. The extreme control Beijing officials exert on anything considered unfavorable by party leaders is only accelerating. Last week, China’s National Bureau of Statistics abruptly cancelled the release of quarterly GDP data hours before it was set to be published.

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    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.

     

    This newsletter was prepared by David M. Kover®. To unsubscribe from the Weekly Market Update please write us at 555 Eastport Centre Dr., Suite B, Valparaiso, IN 46383 or click this link:  Unsubscribe .

     

    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, LLC, 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, LLC.

David M. Kover, Thomas H. Parker, Bradford E. Harris, Laura T. Scobee, Joseph B. Thaman & Brett M. Dankowski are registered to recommend securities offered through Triad Advisors, member FINRA/ SIPC. Investment advice offered through Resources Investment Advisors, Inc., an SEC-registered investment adviser. Resources Investment Advisors, Inc. and Vertical Financial Group are not affiliated with Triad Advisors.