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 reminiscent of oil, gold, and cocoa are rising, although inflation appears to be cooling.
- The highest S&P 500 sector performers point out the bull market continues 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 potential of a correction.
A Macro Look On the Inventory Market
The US financial system retains rising, the labor market is powerful, 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 traders proceed to spend money on 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 instrument). 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 atmosphere. Does the commodity market know one thing we do not?Chart supply: StockChartsACP. For academic 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 implies the commodity rally may very well 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 may very well be a cue to be extra conscious and vigilant.Chart supply: StockCharts.com. For academic functions.
Why ought to traders take a look at commodity charts? If commodity costs proceed to rise when inflation hovers round 3%, it may very well be a trigger for concern. However that will not occur for some time. So long as traders preserve investing and shopping for strain exceeds promoting strain, the inventory market will proceed rising.
How are shares like NVIDIA (NVDA), Microsoft (MSFT), and Alphabet (GOOGL) performing? They’re all buying and selling properly above their 50-day easy transferring common (SMA). When the leaders pull again, it isn’t time to panic, particularly if market breadth continues to be constructive—extra advances vs. declines, share of shares buying and selling above their 50-day SMA is larger than 50, and the Bullish % Index is above 50—issues are nonetheless going properly.
Watch the S&P 500 Sectors
One other confirming sign is to take a look at sector efficiency. The three-month Sector Abstract under reveals that Communication Providers, Vitality, and Know-how have 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 Providers, 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 Providers, Vitality, and Know-how are the highest three sector performers, however Industrials and Financials are usually not far behind. This helps a unbroken bull market.Chart supply: StockCharts.com. For academic functions.
The CBOE Volatility Index ($VIX) hit a excessive of 15.43 on Tuesday, stirring up some investor issues. However it’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 better watch on the VIX.
The Backside Line
If the US financial system continues rising, company earnings stay constructive, and AI shares keep within the highlight, the inventory market may proceed transferring larger, no matter whether or not the Fed cuts charges. However be alert for any adjustments. Watch the bond markets, commodity costs, and volatility.
The Market Overview panel on the StockCharts platform provides an ideal fowl’s eye view of the inventory market. Click on on the totally different tabs—Equities, Bonds, Commodities, Crypto—to get a way of the general market. The Sector Abstract is one other instrument all merchants and traders ought to intently monitor.
Disclaimer: This weblog is for academic 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 Web site Content material at StockCharts.com. She spends her time developing with content material methods, delivering content material to coach merchants and traders, and discovering methods to make technical evaluation enjoyable. Jayanthi was Managing Editor at T3 Customized, a content material advertising and marketing 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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