KEY
TAKEAWAYS
- The Dow Jones Industrial Common, S&P 500, and Nasdaq Composite stays unfazed about rates of interest remaining larger for longer.
- Commodity costs comparable to oil, gold, and cocoa are rising, despite the fact that inflation appears to be cooling.
- The highest S&P 500 sector performers point out the bull market remains to be in play.
Though the broader inventory market confirmed indicators of pulling again, thus far, indicators do not present that it is time to panic.
The S&P 500 ($SPX) was up 10.6%, the Dow Jones Industrial Common ($INDU) was up 5.6%, and the tech-heavy Nasdaq was up over 9% in Q1 2024. All three indexes hit new highs in Q1. With an prolonged inventory market, you possibly can’t rule out the opportunity of a correction.
A Macro Look On the Inventory Market
The US financial system retains rising, the labor market is robust, and inflation is larger than the Fed’s 2% goal. The narrative is that the Fed might have fewer rate of interest cuts in 2024 than the three advised on the final assembly. But buyers proceed to put money into US shares.
Commodity costs have been transferring larger. Oil costs have damaged out of their downtrend and are transferring larger. Gold costs have hit all-time highs, silver costs have hit a 52-week excessive, and cocoa futures have skyrocketed (the chart under was created utilizing the StockChartsACP Layouts device). Be ready to pay extra for these chocolate bars and your each day espressos (espresso futures are up too).
CHART 1. A LOOK AT OIL, GOLD, SILVER, AND COCOA PRICES. All 4 commodities have seen their costs rise in a cooling inflationary surroundings. Does the commodity market know one thing we do not?Chart supply: StockChartsACP. For instructional functions.
Pull up a chart of the Invesco DB Commodity Index (DBC) to view the general efficiency of commodities. The chart under reveals that DBC has bottomed and is reversing. But it is getting near a resistance degree, which suggests the commodity rally might be short-term.
CHART 2. DAILY CHART OF INVESCO DB COMMODITY INDEX (DBC). Within the final 18 months, DBC seems to have bottomed and beginning to reverse. It stays to be seen how excessive DBC can go. It is approaching a near-term resistance degree, and a break above it might be a cue to be extra conscious and vigilant.Chart supply: StockCharts.com. For instructional functions.
Why ought to buyers take a look at commodity charts? If commodity costs proceed to rise when inflation hovers round 3%, it might be a trigger for concern. However that will not occur for some time. So long as buyers maintain investing and shopping for strain exceeds promoting strain, the inventory market will proceed growing.
How are shares like NVIDIA (NVDA), Microsoft (MSFT), and Alphabet (GOOGL) performing? They’re all buying and selling nicely above their 50-day easy transferring common (SMA). When the leaders pull again, it isn’t time to panic, particularly if market breadth remains to be optimistic—extra advances vs. declines, share of shares buying and selling above their 50-day SMA is bigger than 50, and the Bullish P.c Index is above 50—issues are nonetheless going nicely.
Watch the S&P 500 Sectors
One other confirming sign is to have a look at sector efficiency. The three-month Sector Abstract under reveals that Communication Companies, Vitality, and Know-how had been the highest three performers within the final three months. Vitality crept as much as the highest, which suggests some rotation is happening. Nonetheless, if Communication Companies, Know-how, Industrials, and Financials stay robust, the bull market will nonetheless be in play.
CHART 4. SECTOR SUMMARY FOR THE LAST THREE MONTHS. Communication Companies, Vitality, and Know-how are the highest three sector performers, however Industrials and Financials are usually not far behind. This helps a seamless bull market.Chart supply: StockCharts.com. For instructional functions.
The CBOE Volatility Index ($VIX) hit a excessive of 15.43 on Tuesday, stirring up some investor issues. But it surely’s nonetheless comparatively low and has now come off that prime. If the VIX strikes into the 16 or 17 territory and stays there, then it might be time to maintain a more in-depth watch on the VIX.
The Backside Line
If the US financial system continues rising, company earnings stay optimistic, and AI shares keep within the highlight, the inventory market might proceed transferring larger, no matter whether or not the Fed cuts charges. However be alert for any modifications. Watch the bond markets, commodity costs, and volatility.
The Market Overview panel on the StockCharts platform provides a terrific chook’s eye view of the inventory market. Click on on the completely different tabs—Equities, Bonds, Commodities, Crypto—to get a way of the general market. The Sector Abstract is one other device all merchants and buyers ought to intently monitor.
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary state of affairs, or with out consulting a monetary skilled.
Jayanthi Gopalakrishnan is Director of Website Content material at StockCharts.com. She spends her time arising with content material methods, delivering content material to coach merchants and buyers, and discovering methods to make technical evaluation enjoyable. Jayanthi was Managing Editor at T3 Customized, a content material advertising company for monetary manufacturers. Previous to that, she was Managing Editor of Technical Evaluation of Shares & Commodities journal for 15+ years.
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