Last week we talked about the importance of 90% of stocks being above their 50-day moving averages, which is historically a very positive development, but what could lead to further volatility in the market? The answer is higher yields. Rising yields could be a threat to the recent rally that we’ve seen in the stock market. As you can see in the chart shown in this episode, the ten-year yield rallied higher in the past week and is one of the reasons that the market pulled back slightly. On the left-hand side of the chart, you will see that the ten-year yields have been on a decline since June, which coincided with a stronger market. Lower yields have helped drive the market higher in recent reads. We were a little surprised to see yields spike last week as some of the inflation numbers came in lower. We will be watching yields this week to see if them increasing will lead to a market pull back and further uncertainty.
Over the last forty days or so we’ve seen a good rally in the market. The S&P 500 is up approximately seventeen percent. On the chart shown in this episode, you can see how the current market lines up with some of the historic rallies that were in not-so-great markets. Historically, the next 20-250 trading days has led to good performance with the one outlier in 2001. Hopefully, we’re on a good trajectory. What’s been a driver of this move has been earnings. Aggregate earnings per share growth for the S&P 500 is 9.7%, which is well above the 5.6% estimate coming into earning season. Revenue has also been great and it’s not just energy driving this move. As you can see on the chart shown, eight out of the ten sectors reported good earnings. About 90% of the companies have reported so far, so we’re almost through this earning season and not too much is going to change at this point. Overall, this earning season had been a good one.
Most of the damage from the pullback of the S&P 500 last week, came on Friday when the market was down a little over 1%. The closing price on Friday was 4,228. That gives us a new resistance level of 4,260 and a new support level of 4,200. Despite the pullback, over the last month, all eleven sectors have been in the green. The 50-day moving day average is currently sitting at 3,966. This is going to be an important number to keep an eye on over the next three months because that could potentially become our new resistance level and one that we really want to keep an eye on when we see volatility in the markets.
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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