• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Stock Market Delivered Huge Gift, Wipes Away Recession Fears
Stock

Stock Market Delivered Huge Gift, Wipes Away Recession Fears

by December 22, 2023
by December 22, 2023 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

Last week’s statements from Fed Chairman Jerome Powell suggested that interest rate cuts could come soon, which resulted in a sharp rally in the stock market. This was a different narrative from the comments Powell made earlier, in which he suggested it was too early to speculate interest rate cuts.

Revised GDP slowed in the third quarter to 4.9%, and jobless claims rose to 205K. The Personal Consumption Expenditures (PCE) Index for November fell 0.1%. There hasn’t been a decline in this data point since April 2020. Year-over-year, PCE was up 2.6%, which is lower than economists expected. And core PCE was up 3.2% in November, which is lower than expectations but still higher than the 2% Fed target.

Other data shows that personal income and consumer spending rose, further reinforcing the economy’s health. All these data points are positive for the stock market and could move the broader stock market indices higher. If the trend continues, we could see a Santa Claus rally this year.

A Healthy Pullback

Stock market price action on Wednesday made investors jittery, and recession worries resurfaced. But pullbacks can be healthy. If you look at the daily chart of the Dow Jones Industrial Average ($INDU) below, you can see that the relative strength index (RSI) was overbought. Thus, a short-term pullback close to the previous high of just below 37,000 is healthy and an indication the index will resume its longer-term uptrend. So far, even though the Dow Jones Industrial Averaged closed slightly lower, the uptrend is still intact.

CHART 1: DAILY CHART OF DOW JONES INDUSTRIAL AVERAGE ($INDU). The index is still maintaining its uptrend despite the selloff on Wednesday. The previous high, slightly below 37,000, is the first support level to watch. Chart source: StockCharts.com. For educational purposes.

That the RSI dropped closer to 70 suggests momentum faded after the Dow’s nine-day winning streak. Since the Dow’s recent ascent was pretty steep, it’s a good idea to add a short-term moving average as a support level. In the chart below, a 15-day exponential moving average (EMA) was overlaid on the chart of the Dow Jones Industrial Average. The 15-day EMA isn’t too far off from the 37,000 level.

Small Caps Rising

Another area of focus is the price action of small-cap stocks. The January effect is all about small-cap stocks and we’ve seen this group of stocks rise from mid-December. Smaller companies benefit from a lower interest rate environment, since borrowing costs are lower. The daily chart of the S&P 600 Small Cap Index ($SML) below shows that small caps are trading at their yearly highs. If economic conditions sustain their current trend, 2024 should be a good year for small-cap stocks.

CHART 2: DAILY ONE-YEAR CHART OF S&P 600 SMALL CAP INDEX ($SML). Small caps have been shining since November, mainly because of lower interest rates. Small-cap stocks tend to perform better in January. Chart source: StockCharts.com. For educational purposes.

The Bond Market

Bond and stock prices are generally negatively correlated. Bond prices have risen since mid-October (see weekly chart below of iShares 20+ Year Treasury Bond ETF), which shows that Fed monetary decisions are affecting the financial markets. A higher interest rate environment made equity investors reluctant to buy stocks. But now that Treasury rates show signs of reversing, conditions are stabilizing. 

CHART 3: BOND PRICES ARE RISING. After struggling for several years, bonds may be starting to show their value. But it’s too early to tell if the uptrend will be long-term. Look for a break above the 105 level. Chart source: StockCharts.com. For educational purposes.

Treasury yields and bond prices move inversely, so with Treasury yields dropping, it’s no surprise that bond prices are rising. However, bond prices still have to go much higher before trending higher. A break above the 105 level would be positive for TLT and an indication to allocate a slightly larger portion of your portfolio to bonds. 

Now that inflation is cooling, the US dollar is moving lower (see chart below). The monthly chart shows that even though the US dollar is falling, it’s still high. If it continues lower and hits the July 2023 low, it could be an additional catalyst to send stocks and bonds rallying higher.

CHART 4: THE US DOLLAR IS FALLING BUT STILL HIGH, RELATIVELY SPEAKING. If inflation continues to cool, the US dollar could fall further, which could be bullish for stocks and bonds. Chart source: StockCharts.com. For educational purposes.

Stock Market Volatility

With inflation abating, investors have become more complacent, as indicated by the CBOE Volatility Index ($VIX) trading around 13. A low VIX suggests that investors aren’t fearful and are willing to invest in riskier assets. There’s not much concern about portfolio hedging.

CHART 5: LOW VOLATILITY MEANS INVESTORS ARE COMPLACENT. Although the CBOE Volatility Index shows that investors aren’t worried about hedging their portfolios, investors should watch this index as it can indicate a shift in investor sentiment. Chart source: StockCharts.com. For educational purposes.

But that can change, so investors need to keep an eye on the VIX. It tends to spike, and any signs of it moving out of its comfort zone should be a signal that perhaps things aren’t going to be optimistic for too long. It may not happen for a while, but it’s something to watch.

The stock market went through interesting ebbs and flows this year. There’s no telling what 2024 will be like, but you can stay on top of the stock market action using the tools available at StockCharts.com.

Happy holidays from the StockCharts team.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation or without consulting a financial professional.

You Might Also Like
  • Many Stocks in This Industry Popped After Strong Earnings Results — This Similar Company is Due to Report Next Week!
  • Top Ten Charts to Watch for November 2024
  • Stocks Soar, Energy Prices Spike: Are Geopolitical Tensions to Blame?
  • The Halftime Show: 100th and LAST Show!
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Top Five Charts of 2023 #5: Bitcoin
next post
Sector Spotlight: Stocks vs. Bonds –The Clear Preference

You may also like

IWM Closes below Long-term Moving Average. Does it Matter?

September 14, 2023

Intraday Trading Entry and Exit Strategies

April 18, 2024

The Best Five Sectors, #9

March 3, 2025

PMO SELL Signals on All Indexes But One

October 25, 2024

What are the Equity Market’s Warning Signs?

January 31, 2023

Classic Short Setup in Tech

February 22, 2023

Why NVDA’s Stock Price Shift Could Be Your Gain!

February 11, 2025

Why This Latest Bull Market Advance Is So Bullish

February 4, 2024

Finding Setups as Markets Wait for October CPI

November 13, 2023

DP Trading Room: Shareholders Should Come First

June 5, 2023

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right Now

      May 31, 2025
    • Leadership Rotation Could Confirm Corrective Phase

      May 30, 2025
    • Run Your Stock Portfolio Like a Pro Sports Team

      May 30, 2025
    • U.S. foreign tax bill sends jitters across Wall Street

      May 30, 2025
    • Amazon taps Xbox co-founder to lead new team developing ‘breakthrough’ consumer products

      May 30, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,765 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,472 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,451 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,432 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,308 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,106)
    • Investing (538)
    • Stock (2,581)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right...

      May 31, 2025
    • Leadership Rotation Could Confirm Corrective Phase

      May 30, 2025
    • Run Your Stock Portfolio Like a Pro Sports Team

      May 30, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,106)
    • Investing (538)
    • Stock (2,581)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Rate-Sensitive and Big Tech Names Strengthen...

    May 15, 2023

    What Higher Rates Could Mean for...

    January 9, 2025

    It’s TOO EARLY to Be Bullish...

    June 18, 2024
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here