This week’s replace will function a number of charts, every accompanied with commentary. Together with the standard written model of the replace, a brief video model could be discovered beneath.
Market Indexes
The primary 3 months of 2023 have been virtually the exact opposite of the market occasions that occurred in 2022. The markets, largely, principally exhibited excessive volatility, and a excessive diploma of uncertainty for many of final yr. The volatility was led by massive know-how shares, which skilled substantial declines and bear market rallies all through final yr. To the shock of many, bonds (particularly longer-term bonds) additionally skilled excessive volatility and huge declines within the face of rising rates of interest.
In 2023, there stays a excessive diploma of uncertainty, however volatility is declining. Most importantly, the retreaters of the market final yr have been the chargers to begin out this yr, receiving bounces off their low factors. The chart beneath options a number of market indexes for each 2022 and the beginning of 2023:
Supply: Canterbury Funding Administration. Charts created utilizing Optuma Technical Evaluation Software program. ETFs used for indexes are QQQ, DIA, SPY, IWM, and TLT.
- The Nasdaq 100 (principally technology-related shares) declined considerably in 2022 (-34%). To date in 2023, the Nasdaq has been the very best performing index (+20%). Nasdaq shares account for greater than 40% of the S&P 500’s market capitalization.
- The Dow Jones was the very best performing index in 2022. This yr nonetheless, together with small-cap shares, the Dow has been virtually flat and fluctuated sideways. In different phrases, the S&P 500 has been carried virtually fully by technology-related shares.
- Of the index ETFs displayed, 20-year treasuries had been the second-worst performer in 2022 (-31%). Most conservative portfolios had been dragged downward by bonds final yr. Now, long-term treasuries have bounced to begin 2023. Will that development proceed?
The Nasdaq & Know-how
Now, let’s take a more in-depth take a look at the Nasdaq. Final yr, the Nasdaq displayed a textbook bear market sample, characterised by each a sequence of decrease highs/decrease lows and vital declines/rallies. Every rally the index skilled final yr occurred over a really brief time frame and was subsequently adopted by a big decline. Following every rally, buyers had been left asking themselves “is the bear market over?” To date, reply has been “no.”
Supply: Canterbury Funding Administration. Charts created utilizing Optuma Technical Evaluation Software program. ETF used for Nasdaq index is QQQ
- The Nasdaq (ETF: QQQ) skilled a number of massive rallies final yr. Every rally passed off over a brief time frame – a number of weeks or months. Every rally was adopted by an equal or bigger decline.
- To begin out 2023, the Nasdaq has seen a +23% rally in about 3 months. Will this rally be totally different than the earlier ones?
- One constructive is that for the primary time since early final yr, the Nasdaq is above its 200-day transferring common. As well as, whereas the index skilled many decrease highs and decrease lows, the Nasdaq seems to have put in a better low and is now making an attempt to take care of a better excessive.
Know-how shares make up the biggest share of the S&P 500. The S&P 500’s largest particular person sector is info know-how. We’ve talked about that know-how shares have led the markets to date in 2023, whereas many different sectors have been comparatively flat. Proper now, the Data Know-how Sector is at a degree of resistance. See chart and factors beneath.
Canterbury Funding Administration. Charts created utilizing Optuma Technical Evaluation Software program. ETF used for Data Know-how Sector is XLK.
- The black horizontal line represents a line of resistance. You’ll be able to see that the sector skilled a “hole down” (single day burst of promoting and overhead provide) again in spring of 2021 (1a). After placing in a low, the sector rallied to that worth stage, which additionally intersected its 200-day transferring common of worth, earlier than declining as soon as once more (1b). Now, the sector has hit that line as soon as once more (1c). Possibilities would say that the sector would expertise a pullback.
- The decrease third of the chart exhibits the sector’s RSI. This indicator measures overbought/oversold circumstances. In brief, when the blue line crosses above the higher horizontal line, the sector is “overbought” and climbed too far, too rapidly. A pullback is regular and anticipated when this happens.
- With a view to transfer greater, it’s regular for a sector or index to “pullback.” The length and extent of the pullback is unknown. The very best case could be a small pullback, earlier than making an attempt to interrupt by means of overhead resistance.
Worldwide Shares
We’ve pointed it out in a number of updates, however developed worldwide shares are main U.S. shares on a relative foundation. The chart beneath exhibits the EURO 50 Stoxx ETF, which is the biggest 50 European shares.
Canterbury Funding Administration. Charts created utilizing Optuma Technical Evaluation Software program. ETF used for EURO STOXX 50 is FEZ.
- Previous to November 2021, this index had been trending beneath its 200-day transferring common, and placing in a sequence of decrease highs and decrease lows (each bear market traits. Then, the index skilled a “hole up” (single day wave of demand) by means of its 200-day transferring common, which is a constructive, bullish signal.
- For many of 2023, the index had been trending sideways establishing strains of short-term help and resistance, factors the place provide and demand shift. Final month, with the Credit score Suisse banking information, the index skilled a “volatility spike.” This decline was short-lived, and the index returned to normalcy inside a number of days, as if the occasion by no means occurred.
- Just lately, the index approached overhead resistance and “gapped up” by means of it. In different phrases, somewhat than a wave of provide inflicting a decline off of resistance, a wave of demand got here in and pushed the index greater.
- The decrease third of the chart exhibits the index’s relative power to the S&P 500. When the slope of the road is growing, the European shares are outperforming the S&P 500 on a relative foundation. For essentially the most half, this index has been outperforming US shares since late final yr.
Backside Line
It was an attention-grabbing first quarter for the markets, however the backside line is that the market’s power is usually a bit deceptive. The 2 market segments that carried out the worst final yr, know-how shares and bonds, have led the markets this yr. In the meantime, the market’s main index from final yr, the Dow Jones, has been flat or sideways in 2023. There was a big disparity between how know-how shares have carried out (which symbolize the biggest portion of the S&P 500) and the way the remainder of the market has carried out.
Not proven in any charts, bonds have remained risky, and are at a degree of resistance presently. Know-how shares are additionally at a degree of resistance and are barely overbought. The Nasdaq index skilled a number of rallies final yr, however all did not be sustainable. Finally, certainly one of these rallies will return the market to a brand new excessive, however there isn’t a prediction as to which rally will trigger that to occur.
From a portfolio administration view, the Portfolio Thermostat has rotated into technology-oriented sectors, that are main the markets, and holds some extra defensive holdings to stabilize fluctuations. Moreover, the portfolio has publicity to worldwide and European shares. The purpose is to proceed to adapt the portfolio to whichever setting comes next- bull or bear.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.