The Golden Cross?

S&P Rising:

The S&P500 rose 1.6% last week led by the Nasdaq’s 3.3% rally with high-growth technology, discretionary, and communication service sectors leading the way. As it’s been for 2023, energy and defensive stocks, utilities, and staples, once again brought up the rear. The S&P500 ended the week at 4,136, up from last Friday’s close of 4,070. The index is now up 7.7% YTD but down 8.1% from 12 months ago.

10-year Treasury interest rates fell over 10 bps before the Friday payrolls report and even Bitcoin moved higher post-Fed.

Oil and natural gas prices finished the week lower. Natural gas prices continue moving much lower as warmer-than-anticipated weather has hit most of Europe. U.S. government data showed large builds in crude oil, gasoline and distillate inventories also hitting commodity prices.

The Federal Reserve raised rates by 25 bps last Wednesday as expected, however, J. Powell’s commentary was taken as more dovish than expected causing real interest rates to rally and technology and growth stocks to “explode” higher. Chair Powell mentioned disinflation multiple times and even the possibility of a soft-landing narrative.

He said that “it is gratifying to see the disinflationary process now getting underway, and we continue to get strong labor market data”. Powell be out Tuesday in Washington with more comments.

Per Merrill Lynch, on Thursday 2/2/2023, the S&P 500 cash index triggered its 49th golden cross since 1928. SPX returns after a golden cross are historically strong 30, 65 and 195 days after the signal with the index up 75% of the time. S&P500 golden crosses have been Money” when they are associated with recessions. The US has had 15 economic recessions going back to the late 1920s.

The S&P500 has generated 14 golden crosses associated with 13 out of these 15 recessions with the 1929-1933 recession seeing two golden crosses. Recession golden crosses indicate an improving equity market during periods of economic stress. The best returns have been 195 days after the signal.

The S&P500 has been up 92.9% of the time with an average return of 22.0% (22.0% median) 195 days. 260 days after the signal, the markets were also up 92.9% of the time with an average return of 21.9% (18.4% median) 260 days after the signal. (Data per Merrill Lynch Global Research).

The mid-week up move proved short-lived as last Friday’s “jobs report” was 2.5x stronger than expected, causing real rates to move materially higher and the overall stock market gave up most of its “post-Fed” meeting move. While behind the scenes the jobs report was not all it appeared, (https://www.zerohedge.com/economics/what-was-behind-todays-wow-wow-wow-jobs-report) concerns that the Fed must remain “higher for longer” re-emerged.

The Fed is now eying core services inflation ex-housing as its final inflation target. On that basis, annualized inflation over the past three-month period has a been 3%+, versus 4% y/y and above 5% y/y at the end of 2021.

When it comes to stock market seasonality, February ranks as the second worst month of the year for returns, historically speaking.

 

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