Markets Kick off 2023 in the Black after a Dismal 2022: Market Commentary from Cabana’s CEO – January 18, 2023

3 weeks ago

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Stocks have now booked two straight weeks of gains to start 2023. This is a positive sign to me after what was a dismal 2022. Importantly, the benchmark S&P 500 is now back above its 50-day and 200-day simple moving average (SMA). This makes the fourth time since last spring that we have seen an attempt by that broad index to reclaim and hold those technical levels. The 50-day SMA is converging on the longer term 200-day SMA and evidences a potential trend change from the series of lower lows we saw all last year. The Dow and mid-cap indices have already seen their 50-day SMA cross above their 200-day SMA. All sustained rallies have to start somewhere, and this looks like a good spot to me for another shot at it. 

The stock market’s upward move has coincided with a pullback in bond yields and a bounce in bond prices. As I see it, long term bonds have benefitted the most from the view that we are facing an imminent economic slowdown (and falling inflation), which may cause the Federal Reserve to halt or at least slowdown its rate hike campaign. Bad news has become “good news” – and vice versa. The worse things look, the better the stock market seems to like it. Anything to get the Fed to back off.  

I think we still have a way to go before we can confirm a technical trend change. The indices that have outperformed, like the Dow, small- and mid-cap, need to clear resistance at their November highs and the S&P 500 (SPY) needs to clear 410 at a minimum. I think we are likely to see some profit taking and backfilling after the past two weeks move up before we get a legitimate shot at that overhead resistance.  

Finally, let’s not forget about what really drives stock prices, in our view, and that is earnings. We are now getting into the heart of earnings season and will see how rising rates are impacting corporate profits. It is possible that fourth-quarter earnings come in strong enough to propel us higher while we wait for the lag effect of rising rates to kick in.  

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June 22, 2022

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