The market just keeps dodging everything thrown at it…
Economists and fundamental analysts continue to debate the state of the economy. And strategists are arguing whether we’ll endure a hard or soft landing.
These so-called market experts’ persistent fears of a recession have kept many folks on the sidelines since the October 2022 lows.
Meanwhile, job growth is still strong. The unemployment rate is near record lows. Yet the banking crisis has claimed another victim over the past month in First Republic Bank.
With this much confusion, I can’t blame people for being cautious. More than $5 trillion sits in money-market funds today.
Fortunately, we can take a better approach. With the help of our analytical tools, we can jump on the best opportunities. And right now, stocks are in a good spot…
So today, let’s take a closer look at why I’m optimistic. I’ll also share the exact number I want to see the S&P 500 Index stay above. It’s my medium-term “bullish” threshold.
Let’s get into it…
Through four-plus months of this year, the S&P 500 is up roughly 9%. And the Invesco QQQ Trust (QQQ) – which tracks the tech-heavy Nasdaq 100 Index – is up an incredible 27% over that span.
As always, though, we want to look at the underlying factors. For that, we use the Power Gauge – one of our most critical tools at Chaikin Analytics.
I created the Power Gauge system to bring high-level analysis to individual investors. It combines 20 of the most important factors to an asset’s performance and distills them into a simple rating: bullish, bearish, or neutral.
Today, the S&P 500 – as tracked by the SPDR S&P 500 Fund (SPY) – maintains its “very bullish” Power Gauge rating. Take a look…
To get more specific, the index ranks “very bullish” in its technical strength. And the combined weighted Power Gauge rankings of the stocks in the S&P 500 are bullish as well.
Now, has the market’s climb been choppy? Absolutely.
You can see the volatility on the chart. And it’s fair to say that this year’s news cycle has felt harrowing at times. But that doesn’t negate the broadly improving economic conditions we’re seeing.
As I told paid subscribers last month…
There’s a silver lining in the banking crisis, too… The Fed now has the cover it needs to pause – and likely end – its rate hikes. That will likely happen after the expected 25-basis-point increase at the May meeting of the Federal Open Market Committee.
Well, the Federal Reserve completed the final part of that statement at the start of this month…
It raised the benchmark federal-funds rate by 0.25% (25 basis points). The target range now sits between 5% and 5.25%.
The market believes the Fed will soon pause its rate hikes as well…
CME Group – which runs the Chicago Mercantile Exchange – maintains a FedWatch Tool to try to predict the central bank’s next moves. As I write, it projects a 73% chance that rates will remain unchanged at the Federal Open Market Committee’s (“FOMC”) next meeting in June. (The FOMC is the Fed’s policymaking arm.)
Once again, we’re seeing the S&P 500’s headwinds fade. Inflation is easing, which means the Fed will be able to relax its aggressive posture.
Still, a lot of folks have asked me what my “bullish threshold” is…
Obviously, I’ll be using the Power Gauge as my guiding light. Its nuanced approach means that every stock in the S&P 500 receives an individual rating. The proprietary weighting of those ratings produces the rankings that S&P 500 funds like SPY receive.
That said, I can offer you a single number that I’ll be watching closely…
As long as the S&P 500 stays above its December 2022 low of about 3,760, I’ll remain “bullish” on stocks.
I also still recommend focusing on stocks in strong industry groups with “bullish” or better Power Gauge ratings – like the now-soaring software-industry group we track, which holds 169 bullish stocks and only two bearish stocks.
The market might look confusing right now. But the underlying signals show that the recent rally is strong. That means we want to stay long today.
Good investing,
Marc Chaikin
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Source: Daily Wealth