Despite the numerous calls for a market crash and recession, we expect higher prices to be seen in most stocks during 2022. Crashes almost exclusively occur when investors and the financial media do not expect them to, and the major indices should rally back towards their highs before any such event takes place. Our system still projects high odds of a recession during 2023 – but the market still has room to rally before it sets in.
A great illustration of the fact that severe market downturns rarely occur when most expect can be seen in the above chart depicting S&P 500 returns following CNBC’s “Markets in Turmoil” show, a program which frequently forewarns of pain coming for stocks. Given the above statistics, their first airing of the show last week after nearly two years is a legitimate data point and bullish indicator for the market’s future. The program embodies how oftentimes markets reverse only once sentiment reaches such an extreme, countless retail traders are throwing in the towel believing the market can go only one way.
Above is a sentiment chart which further highlights this heavy psychological pendulum swinging from intense greed to extreme fear. The market is ultimately a measure of human psychology, and sentiment is a critical metric to track when investing.
From a technical standpoint, the Dow, S&P 500 and Nasdaq all remain beneath their 200-day and 50-day moving averages. Meanwhile, the VIX spent the majority of this past week above the 30-level as fear continues to remain elevated. However, the indices should begin to regain their moving averages in the weeks ahead as the VIX regresses to the key 20-level.
Past Week’s Economic Data:
ISM Manufacturing PMI: Miss
JOLTs Job Openings: Beat
ISM Non-manufacturing PMI: Miss
ADP Non-farm Employment: Miss
FOMC Meeting Rate Hike Decision: Neutral
Initial Jobless Claims: Miss
Nonfarm Payrolls: Beat
Unemployment Rate: Miss
Upcoming Economic Data:
Wednesday: Core CPI
Thursday: Initial Jobless Claims, PPI