Two weeks of strong gains caused investors to do a bit of profit – taking which created a loss on Wall Street this past week. This was not a large reversal by any means, however there remains a sleeping giant of a report this week that will affect (notice we didn’t say ‘could’) the equity markets for a period of time.
On Tuesday the Department of Labor will release the Consumer Price Index (CPI) for January. The CPI, being the widely watched report that it is can cause seismic shifts in the markets. On September 13th for example, the CPI report which signaled the inflation rate getting hotter, caused the S&P 500 to plunge 4.3% ON THAT DAY! The Nasdaq Composite fell 4.3% as well.
By contrast, on November 10th when the CPI was announced showing a drop in inflation for October, the S&P 500 rose 5.5% and the Nasdaq up 7.3%. This week’s report for January is highly anticipated and along with these following months will send signals to the Federal Reserve as to their course of action regarding interest rates. Fed Chairman Jerome Powell said on Tuesday that they have more work to do in order to bring inflation down to their goal of 2.2% annual growth, especially after January’s job report indicated that the economy remains on fire. He did indicate that the Fed’s belt tightening has begun to show results which caused the S&P 500 to rise 1.1% Tuesday, although cautioning that more hikes will be necessary.
Last week saw the S&P 500 retreat 1.11%, however looking at the data for the NASDAQ performance in January, we saw gain of 10.7% for the month – the best January performance by the NASDAQ since 2001.
The ‘Golden Crosses’ we’ve been writing about continues to appear. This type of indicator is a bullish one and happens when the 50-day moving average crosses the 200-day moving average. This has now appeared in the S&P 500 and Small Caps. The Nasdaq 100 closed the week above its 50-day moving average but still below its 200-day MA. Actually 66.58% of stocks currently trading on the stock exchanges are above their 200-day MA!
The Consumer Credit Report issued for December has further confirmed that too many Americans are living on credit, increasing by $11.5 billion but a large drop from November’s number of $33.1 billion. Consumer spending is a very large part of the US economy.
As we’ve written previously, we are sailing in uncharted waters now. A Panic Bottom which we have continually written about, which would shake the market signaling an end to the Bear Market, has not materialized and in fact we are now seeing an end to the Bear Market should the S&P 500 close above 4,300. Friday’s number for the S&P 500 stood at 4,090.
Our current positions are:
Small Cap Funds
S&P 500 – Large Cap Funds
Nasdaq 100 Index Funds
International Growth Funds
As always, we recommend diversification – meaning to not have everything in one sector.
Any alerts will be forthcoming when necessary, during the week.