From the desk of Vance Howard:
The HCM-BuyLine® has again firmed up substantially over the last few weeks giving us some optimism that a new uptrend could be materializing. Also, this week the NASDAQ Composite A/D indicator moved to its highest level since September 2021 and QQQ long-term breadth also improved. More indictors are turning up, which is a very positive sign. Most bear markets last about 9 months, and we are into month 13 on this one, so we believe we are getting close to the end of this bear cycle.
2022 was an incredibly volatile year. With unemployment very low, a good economy, banks very solvent, and companies making a lot of money, you would think things would be fantastic. But inflation and the Fed do not see it that way. A business owner I know put it pretty much spot on “they are going to kill everything else just to kill inflation, not sure if that is very prudent”. If the Fed does not slow down with rate increases, they will push the economy into recession which will lead to millions of job losses, everyone getting poorer, and a lot of emotional destruction. I don’t see too many politicians sitting idly by with the “let’s kill everything just to kill one thing” mentality.
But there is good news! Inflation does appear to be rolling over, and at a pretty good pace. Supply chain issues are starting to ease, oil is stabilizing, housing is rolling over, and labor markets and wages are all slowing, which leads us to believe the Fed will start to slow the pace and amount of rate increases in the near-term. In fact, we believe the bond market is already starting to sense this.
We have added some bond exposure over the last few weeks by taking long positions in EM bonds (PCY) and long-term corporates (LQD). Has the bond market started to turn up for a new bull market? Time will tell, but things certainly look a lot better.
Stocks like AMD and the semiconductor index are firming up and could be big winners this year after a very painful 2022.
Since 1950, if the first 5 trading days are up 1.4% or better and the previous year was negative (which has happened 7 times) then the market has finished positive the following year.
- 1958 first five trading was up 2.5%, the year ended up 38%
- 1963 first five trading was up 2.6%, the year ended up 19%
- 1967 first five trading was up 3.1%, the year ended up 20%
- 1975 first five trading was up 2.2%, the year ended up 32%
- 2003 first five trading was up 3.4%, the year ended up 26%
- 2012 first five trading was up 1.8%, the year ended up 13%
- 2019 first five trading was up 2.7%, the year ended up 29%
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