Most interesting chart this week:
Chris Kimble of Kimble Charting Solutions is an excellent technician. It on Friday and it quickly caught my eye.
In my opinion, if you want a chart that personifies risk in this market today, here it is in red and gray.
Think if the commodities sector breaks out from here: That means faster fed funds rate hikes (most likely) by Powell and the FOMC, downward pressure on stock prices and data from inflation still high.
Crude didn’t do particularly well this week with the Ukrainian news. Two weeks ago there was +25% on the year (by Bespoke), so it’s a crowded trade for sure. If the commodities sector crashes here, that gives Powell a lot more leeway to be tempered by upcoming fed funds rate hikes.
They managed to end the week up +0.10%, which is quite surprising given the action on Wednesday February 23rd.
here is S&P 500 earnings data from IBES by Refinitiv, by the numbers:
- The forward estimate rose to $226.70 this week from $226.41 last week.
- The PE ratio on the forward estimate ended the week at 19.4x;
- The S&P 500 earnings yield ended the week at 5.15% versus 5.18% multi-year last week;
The S&P 500 EPS’s expected growth rate for 2022 was 10% in October, but has fallen to 8% currently, which isn’t that bad, but readers can see how much tougher the year will be overall. for stock returns.
Summary / Conclusion: Speaking of charts, the S&P 500 chart below shows the index sitting on the 50-week moving average.
This blue line is a critical price level AND it is being tested just as the commodity chart above also shows that a potential breakout is at hand.
The last time we saw something like this was in the early 2000s, with the tech-heavy S&P 500 in the midst of a 50% correction, while commodities like oil crude, fertilizers and coal screamed louder.
Energy and represent 5.2% of the S&P 500 by market capitalization. Even if sectors outperform significantly, it takes a lot to make a difference in the benchmark. While Thursday’s rally this week has been impressive (it was down 3% at one point Thursday morning, but ended the day up 3.5%), I don’t think we’re far from come out of the weeds so to speak. The Fed mandate is going to maintain a cap on stock and bond returns this year and it looks like it will be a very selective market.
Take all of this with a grain of salt and substantial skepticism. Predictions are easy, but being consistently right is much harder. With Monday being the end of February 2022 and not a particularly good month to start, readers could see another rally ending on February 22, and then all attention will turn to the Fed.