The million-dollar question that is populating the airwaves right now is “have we bottomed yet”? I think the answer lies in two things, first and foremost, the Federal Reserve and whether they will pull back some on their interest rate hikes. And the second question that comes to mind is how corporate earnings perform as this year continues to unfold. Well, the bull case is inflation will continue to ease which should slow down the Fed’s interest rate hikes. The bear case is inflation is still high and that it is going to take time for 2% inflation which is the Federal Reserve’s target. Needless to say, volatility should be in play for the foreseeable future.
The markets did close out the month of January on a high note. Yesterday, the Dow Jones Industrial Average (see chart here) closed up 368 points closing over the 34000 level. The S&P 500 (see chart here) finished the month of January up 59 points, the Nasdaq Composite (see chart here) closed up 190 points and the small-cap Russell 2000 (see chart here) closed up 46 points on the last day of January.
Technically speaking these key indexes also appear ready to run some more. Each of these key indexes are finding support at their respective 20-day, 50-day, 100-day and 200-day moving averages. As I look at the relative strength index aka the RSI, there is yet another technical indicator that appears to favor stocks for a continuation to the upside. After a slight retracement of the RSI there are no overbought conditions yet as defined by the RSI.
All in all, I think the stock market is performing quite well considering the headwinds that are currently present. From high inflation to corporate earnings compression, to the ongoing geopolitical backdrop, I think the bulls will take the markets performance so far this year. And as mentioned above, I would not be surprised to see volatility in stocks for the foreseeable future.
Good luck to all 🙂