Welcome to volatility 2.0. Or maybe better said, Happy New Volatile Year 2.022. While the year-end Christmas rally delivered on its promises, Scrooge seems to be saying, “Humbug. Christmas (year-end rally) is a humbug.”
The past years market buzzwords of “sector rotation,” “bifurcation” and “cross-currents” remain, and “in full vigor.” But new terms are being added that might even startle a ghost of Christmas-rallies past: “swifter winddown,” “balance sheet unwind” & “rate hikes” (aka. quantitative tightening, or QT). No one likes having the punch bowl taken away, or having to tighten their belt, least of all – the stock market.
The stock market is a forward discounting mechanism. And as such, these new terms are already making their presence felt. Most notably in the areas of technology stocks and bonds.
The stock market is trying to discount the Fed’s new interest rate intentions and is rapidly shedding some of its recently gained Christmas “pounds” (points). The risk/reward ratio for investing in growth stocks and the general stock market indexes still reflects higher than normal risk at these lofty price levels. Be vigilant to move to a more defensive stance if the S&P500 slices below its 50-day moving averages on increased volume soon. Note: The Nasdaq already has.
Our Current Market Outlook remains “Uptrend Under Pressure” with a yellow light. Our “Core Four” has 3 yellow and 1 red light currently (see top of page) as the VIX is retaking its 50-day mav. This remains a whipsaw market in which neither the bulls nor the bears have a clear advantage, however, the bears seem to be gaining a slight edge.
While the stock market did mount a Christmas/year-end rally, even in the face of the Fed’s future interest rate hike discussions, it came with no volume confirmation. A bull trap? Possibly. To us it looked more like shameless year-end portfolio manager window dressing to pump up assets under management for the sake of higher year-end fees. Call it what you want, but the stock market is giving those gains back rapidly just a few days later – and on higher volume.
The math of the market, worth trusting as it factors it all in, continues to suggest caution is warranted by investors. Happy New Year?
On a side note, today marks the 1-year anniversary of a historic and amazing rally in Washington DC that was in support of our freedoms as a nation, and in support of former President Trump. It was a historic and marvelous (and cold!) morning. (Read about our experience here.) But by late afternoon that day, after nearly a million Trump supporters had already begun heading back to their trains, buses, hotels, etc., an awful event transpired and marred it forever. We certainly don’t condone what a few hundred zealots did that afternoon, nor do we condone the unnecessary and abusive level of force exhibited by several on the CPD. As you reflect on today’s anniversary, spend time praising God for the freedoms we enjoy here, and hold in higher esteem the nearly 1 million other law-abiding patriots who braved the weather, long trips, and malignment by the media to assemble peacefully to protect those freedoms. There is still hope. Happy anniversary!
What to do now? Freshen up your watch lists with stocks and sectors that are trying to lead. Watch for a downward vertical violation of the 50-day mav on the S&P 500 index. Keep your eyes on the yield of the US 10-year note.
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2022 Triumphant Portfolio Management, LLC.