Weekly Market Vibes

Stocks Surge into April

S&P 500, NASDAQ extend gains for third consecutive week.

Equities turned sharply higher this week as investors shook off banking concerns, and economic data showed progress in the war on inflation. News that North Carolina based bank First Citizens (FCNCA) was buying Silicon Valley Bank (SIVB) over the weekend helped boost financial shares to start the week, but the major averages were mixed on profit taking in technology stocks after their recent runup. Solid earnings and guidance midweek coupled with comments from Fed officials that rate hikes were almost off the table rallied equities again and the NASDAQ touched a six-week high on Thursday. Friday's lower than expected Personal Consumption Expenditures Index (PCE), the Fed's preferred inflation gauge, kicked the different indexes higher once again ahead of the weekend and the major averages closed out the week and the first quarter of 2023 on a high note. The gains were across the board with every sector finishing green led by strength in Energy (XLE), Consumer Discretionary (XLY), REITs (XLRE) and Materials (XLB), up more than +5%. Yields firmed as worries over the banking system abated but closed near the lows of the year on dovish Fed comments on Friday with the 10-year Treasury closing the week at 3.48% and the two-year T-Bill landing at 4.04% after dipping to 3.77% the previous week. The banking woes did help gold prices however, with gold futures flirting with $2000 an ounce before ending the week at $1987.80 an ounce. Gold last traded above the $2000 mark in August 2020. Crude oil prices increased about +8% during the period. The bulls were back in control as the week ended with the DJIA closing higher for a second straight week, while the S&P 500 and NASDAQ gained for the fourth week out of the last five.

For the period, the DJIA picked up 1036.62 points (+3.2%) and settled at 33274.15. The S&P 500 added 138.32 points (+3.5%) and closed at 4109.31. The NASDAQ jumped 397.95 points (+3.4%) finishing at 12221.91, while the small cap Russell 2000 outperformed gaining 67.56 points (+3.9%) finishing at 1802.48.

The technical condition of the market improved this week with the major averages extending their gains and trading above key moving average (MA) resistance. The technical indicators for the DJIA, S&P 500 and NASDAQ are in positive ground with MACD, a short-term trend gauge, having crossed to a bullish trend, while Momentum, as measured by the 14-day RSI, is strong and increasing. The secondary indexes, which market technicians would like to see leading the market higher and lower, showed positive divergence and outperformed the major averages. While the small cap Russell 2000 remains below key MA resistance due to the selloff in regional bank shares that are in the index, the DJ Transportation Index traded back above its 100 and 200-day MA. The Philadelphia Semiconductor Index continues to show Relative Strength and closed the period at a 52-week high which is a plus for the market going forward. Sectors wise, we saw Technology (XLK) take out its February high with Communication Services (XLC) a chip shot away from its February high, while Consumer Discretionary (XLY), Consumer Staples (XLP) and Industrials (XLI) took out a key MA resistance level at their respective 50-day MA. Energy (XLE) and Materials (XLB) traded above their 200-day MA. Financials (XLF), Energy (XLE), REITs (XLRE) and Healthcare (XLV) continue to underperform the S&P 500. With the stock market now in a seasonally strong period, further upside looks to be in the cards. New upside targets for the major averages are 34,000-34.200 for the DJIA and 4180-4200 for the S&P 500. The NASDAQ target is now 12600-12620.

Underlying breadth was bullish with the NYSE and NASDAQ Advance/Decline lines, which are leading indicators of market direction, moving sharply higher showing the majority of stocks are under accumulation. New 52-weeks highs outnumbered the new lows on the NYSE with the lows contracting throughout, while the NASDAQ saw a big reduction in the number of new lows contracting to 110 on Friday, down from 623 just over two-weeks ago. Despite the banking turmoil, Investor Sentiment improved and is now neutral. According to the American Association of Individual Investors (AAII) however, retail investors are still bearish by about a 2:1 ratio, but there was a small uptick in the percent of bulls. The professionals are still neutral on the market but showing increased bullishness. The National Association of Active Investment Managers (NAAIM) Exposure Index jumped to 65.1%, up from 41.9% two weeks ago, while the Percentage of Bullish Investment Advisors firmed to a neutral 40.8%.

After the banking turmoil and softer inflation data that we've seen in the last few weeks, it feels like we're in the ninth inning of the Fed's tightening game. Friday's PCE Index report, the Federal Reserve's favored inflation indicator, was below expectations at +0.3% and down from +0.6% in January. That may not prevent Powell and Associates from raising rates another 0.25-point at the May FOMC Meeting, but as of Friday the CME Group FedWatch has it a coin-toss between a pause or hike. This week some analysts were calling for rate cuts later in the year that could propel equities higher, while across the table, the other side was calling this a relief rally. I'm not sure I agree with either side. Its doubtful inflation will curb itself enough this year to warrant rate cuts. On the other hand, the US economy has proven itself to be stronger than expected and could be supportive of higher prices over the near term. Either way, as we enter a seasonally strong period for the market, equities should be able to climb a wall of worry' into May. After that? I'd continue to keep an eye on the yield curve. Despite a resilient economy, history shows that it's the pace of rising yields that throws the economy into a recession and we're just emerging from one of the fastest and steepest tightening periods on record. The Bulls are in control for now, but investors may want to lighten up on the run in May. If economic data begins to bog down, we could be in for another long, hot summer where stocks struggle against the weight of the Fed's year long battle to tame inflation and renewed worries of a recession.

The markets momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.

The Momentum Index is Positive at +10, up eight notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 6964 units while the number of new 52-week highs out did the new lows on three sessions. Breadth was mixed at the NASDAQ as the A/D line jumped 4081 units while the number of new lows beat the new highs on each day. Finally, the percentage of stocks above their 50-day moving average jumped to 34.3% vs. 22.5% the previous week, while those above their 200-day moving average rose to 49.6% vs. 39.4%. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Measuring the markets Bullish or Bearish sentiment is important when attempting to determine the markets future direction. Market Edge tracks nine technical indicators that measure excessive speculative or sentiment conditions prevalent in the market.

The Sentiment Index is Neutral at +2, down a notch from the previous week. The Dividend Yield Spread (-2.09 vs. -1.98) and the AAII Bull-Bear Ratio (0.5 vs. 0.4) are Bullish. NYSE short interest was up +2.4% and 2.5 days of average volume for the period ending 2/28/23 vs. being up +0.9% and 3.6 days average volume to cover mid-February. Short interest at the NASDAQ was up +1.1% and 2.5 days of average volume at the end of February vs. a -1.2% decrease and 2.1 days average volume to cover on 2/15/23. The Percentage of Bullish Investment Advisors (40.8% vs. 39.7%), the Percentage of Bearish Investment Advisors (26.8% vs. 28.8%), the Bullish-Bearish Investment Advisors Ratio (1.5 vs. 1.4), the Fear and Greed Index (38.2 vs. 32.6), the Total Put/Call Ratio (1.03 vs. 1.01), the NAAIM Exposure Index (65.1 vs. 53.2) and the VIX, a measurement of fear in the market, (18.70 vs. 21.74) are Neutral. VIX readings under 13.00 are regarded as bearish while those above 30.0 are bullish.

U.S equity funds, including ETF activity, had outflows of $20.5 billion for the reporting period ending 3/29/23 compared to inflows of $11.9 billion the previous week.

What's Hot (15) What's Not (7). Of the 91 Industry Groups that we track, 15 are rated as either Strong or Improving while 76 are regarded as Weak or Deteriorating. The previous week's totals were 19-71. The following are the strongest and weakest groups for the period ending 3/30/23. Strongest: Advertising, Semiconductors & Related, Automobile Manufacturing and Internet-Software. Weakest: Internet-Financial, Banks-Eastern, Internet-Content and Banks-Western.

The top performing ETF categories for the week ending 3/30/23 were: Sector-Energy (+6.01%), Commodity-Energy (+4.90%), Specialty Natural Resources (+4.75%), Specialty Utilities (+4.53%) and Specialty Real Estate (+4.46. The weakest categories were: Shorts (-5.44%), Bond-Government Long Term (-1.32%), Bond-Government Interm Term (-0.75%) and Bond-Multisector Aggregate (-0.74%).

By David L. Blake, CMT

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