The stock market’s incredible resilience: What this means for the second quarter | chart watcher
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gist
- The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite are unperturbed that interest rates will continue to rise for much longer.
- Even though inflation appears to be cooling, prices of raw materials such as oil, gold and cocoa are rising.
- Top performance across S&P 500 sectors suggests the bull market is still underway.
Although the broader stock market has shown signs of decline, there are so far no signs that it is time to panic.
In the first quarter of 2024, the S&P 500 ($SPX) was up 10.6%, the Dow Jones Industrial Average ($INDU) was up 5.6%, and the tech-heavy Nasdaq was up more than 9%. All three indices hit record highs in the first quarter. If the stock market expands, the possibility of a correction cannot be ruled out.
A macro view of the stock market
The U.S. economy continues to grow, the labor market is strong, and inflation is above the Fed’s 2% target. The story is that the Fed may cut fewer interest rates in 2024 than the three it proposed at its last meeting. Nonetheless, investors continue to invest in U.S. stocks.
Raw material prices are on the rise. Oil prices have broken out of a downward trend and are showing an upward trend. Gold prices hit record highs, silver prices hit a 52-week high and cocoa futures prices also surged (the chart below was created using the StockChartsACP layout tool). Be prepared to pay more for chocolate bars and daily espresso (coffee futures also rise).
Chart 1. A look at the prices of crude oil, gold, silver, and cocoa. All four commodities rose in price in a cool inflation environment. What do commodity markets know that we don’t?Chart source: StockChartsACP. For educational purposes.
Pull up the Invesco DB Commodity Index (DBC) chart to see the overall performance of the commodity. The chart below shows that DBC has bottomed and is reversing. However, it is getting closer to the resistance level, which means the commodity rally may be short-lived.
Chart 2. INVESCO DB Commodity Index (DBC) daily chart. Over the past 18 months, DBC appears to have hit bottom and begun a turnaround. It is not yet known how high DBC can go. We’re approaching a short-term resistance level, and if we break this level, it could be a signal that we need to be more cautious and alert.Chart source: StockCharts.com. For educational purposes.
Why should investors look at commodity charts? With inflation hovering around 3%, there may be concerns if raw material prices continue to rise. But that might not happen for some time. As long as investors continue to invest and buying pressure exceeds selling pressure, the stock market will continue to rise.
How are stocks like NVIDIA (NVDA), Microsoft (MSFT), and Alphabet (GOOGL) performing? All are trading well above their 50-day simple moving average. (SMA). This is not the time to panic if a leader steps down. Especially if market breadth remains positive. Percentage of stocks trading above their 50-day SMA greater than 50, Bullish Percentage Index It’s over 50. Things are still going well.
View S&P 500 Sectors
Another confirming signal is to look at industry performance. The three-month sector summary below shows that Telecommunications Services, Energy and Technology made up the top three sectors over the past three months. The energy has risen to the top, suggesting some kind of rotation is occurring. However, if communication services, technology, industrials and financials remain strong, the bull market will still be in effect.
Chart 4. Sector summary for the last three months. Telecommunications services, energy and technology were the top three sectors to perform, but industrials and financials were not far behind. This supports a continued bull market.Chart source: StockCharts.com. For educational purposes.
The CBOE Volatility Index ($VIX) hit a high of 15.43 on Tuesday, raising concerns among some investors. However, it is still relatively low and has now moved away from that high level. If the VIX moves into the 16 or 17 area and stays there, it may be time to watch the VIX closely.
conclusion
If the U.S. economy continues to grow, corporate profits remain positive, and AI stocks continue to gain traction, stock markets could continue to rise regardless of whether the Federal Reserve cuts interest rates. But watch out for changes. Explore bond markets, commodity prices, and volatility.
that much Market Overview The StockCharts platform’s panel provides a great bird’s eye view of the stock market. Click on various tabs including stocks, bonds, commodities, and cryptocurrencies to understand the entire market. that much Sector Summary This is another tool that all traders and investors should monitor closely.
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.
Jayanthi Gopalakrishnan is the Director of Site Content at StockCharts.com. She spends her time creating content strategies, providing content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was the Editor-in-Chief of T3 Custom, a content marketing agency for financial brands. Prior to that, she served as Technical Analysis Editor for Stocks & Commodities magazine for over 15 years. Learn more
