Inflation Triggers Stock Market Recession: How This Affects Your Portfolio | chart watcher

What a difference a day makes! ISM services data for December shows the services sector remains strong. According to the JOLTS report, there were 8.09 million job openings in November, well above the 7.7 million expected. U.S. economic growth is strong, as is the labor market. Stocks sold off on the news and for the rest of the trading day. Tuesday’s economic data has raised thoughts about the possibility that the Federal Reserve may back off its 2025 interest rate cuts.

The Federal Open Market Committee (FOMC) releases meeting minutes on Wednesday at 2 p.m. Investors will be paying close attention to hawkish signals from the Federal Reserve. We expect some market activity on Wednesday afternoon. U.S. stock markets will be closed on Thursday to commemorate former President Jimmy Carter. Non-farm payrolls for December are released on Friday, so don’t be surprised to see increased volatility this week.

The return of the inflation narrative

There was plenty of excitement in the bond market while stocks sold off on concerns about inflation and labor issues. Treasury yields rose on the news, with the 10-year yield closing at 4.68%. It is close to the 52-week high of 4.737. If we get there, things could get even worse for stocks.

They were bad enough on Tuesday. All broad indices ended lower. Nasdaq Composite ($COMPQ) closed down 1.89%. daily chart Stock prices on the Nasdaq (see below) do not paint a good picture.

Figure 1. Nasdaq Composite Index daily chart. A series of lower highs should be a warning that the index is falling.Chart source: StockCharts.com. For educational purposes.

The Nasdaq Composite Index is approaching its 50-day simple moving average. (SMA), a break below that may be cause for concern. It would be even more concerning if this decline occurred simultaneously with the Nasdaq decline. Prior rejection problem (bottom panel).

NASDAQ fell below its 50-day SMA in the past and then recovered. The recovery provided an opportunity to accumulate long positions in Nasdaq stocks. A similar scenario could occur this time, but Mark Twain’s famous quote, “History doesn’t repeat itself, but it often rhymes” keeps coming back. What kind of rhyme will come out this time?

Energy and Health Management

Overall, it was a pretty dark day for stocks. Nine out of 11 S&P industries closed in decline. Energy and healthcare were the only stocks to close higher. However, the exchange traded fund (ETF) charts representing these sectors are — Energy Selection Sector SPDR (XLE) and SPDR, Medical Selection Division (XLV) — Does not indicate a bullish trend. Bullish Percentage Index (BPI) is below 50, and the S&P Healthcare sector BPI is 39.39, which is the more favorable of the two.See chart below).

Figure 2. Energy and healthcare sectors. Even though the Energy and Healthcare sectors were the best performers on Tuesday, these charts do not show a bullish character.Chart source: StockChartsACP. For educational purposes.

The best-performing S&P 500 stocks on Tuesday were: Moderna Co., Ltd. (MRNA) rose 11.65%. Moderna is developing an avian flu vaccine, which has helped boost its stock price. Market Mover Panel dashboard It shows a handful of healthcare and energy stocks. S&P 500, up % category.

Even if the energy or healthcare sector charts are far from bullish, they are worth keeping an eye on. If a bullish trend develops and other sectors, such as technology and consumer discretionary, turn bearish, it may be worthwhile to allocate a portion of your portfolio to sectors that are showing strength.

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.