Hi Everyone,
All of the main sectors closed the day in the green, and with only the defensive healthcare, utilities, and consumer staples sectors clearly lagging the broader market. Facebook’s (FB, -4%) performance dragged the communication services sector lower but tech stocks, in general, had a great day, together with energy stocks, materials, financials, industrials, and consumer discretionaries. Real estate stocks also held up well in the face of the uptick in Treasury yields, as the solid existing home sales data supported the sector.
Traders said that despite today’s rally, bulls continue to face major short-term technical obstacles. As one trader explained, “Even though the Nasdaq closed a tad above its 50-day moving average, the Dow and the S&P 500 are still stuck below their short-term indicators in the wake of today’s volatile session, so it’s too early to conclude that the pullback is behind us.”
Today’s Fed announcements were a mixed bag from an investment perspective, even though we didn’t get meaningful new information regarding the Central Bank’s next steps. Jerome Powell & Co. refrained from releasing an exact tightening schedule, but the members of the FOMC now expect a more aggressive tightening cycle due to the global surge in prices, with a possible rate hike as early as next year. Just a few months ago, it seemed that the Fed could hold its benchmark rate steady until the end of 2023, but thanks to the strong recovery and the worrisome rise in inflation, we saw a clear hawkish shift recently from several Fed officials.
According to the AAII Sentiment Survey, which is one of the longest-running sentiment data sets, individual investors had already become the most bearish in well over a year last week. The deepest pullback since last October pushed the ratio of bullish respondents down to nearly 20%, and these kinds of environments are usually indicative of an approaching short-term bottom. While stocks could still turn lower in the coming days, and sentiment indicators alone are not accurate timing tools, the gloomy mood on the Street means that the odds of a strong rally are on the rise.
“Life is the art of drawing without an eraser.”
John W. Gardner
As always, have a great evening and stay tuned!!
