Next week is Snake Day, not to mention the 30th anniversary of “Snake Day” in theaters. However, investors are betting that they will wake up on Thursday and break out of the “doom loop” that has bound them for a year – a pattern in which all market rallies die off under the sun. The shadow of the Federal Reserve is determined to reduce risk appetite and hold back the economy. The S&P 500’s 16% gain since its October bear market low is the highest since an 18% gain that peaked in mid-August, just before Fed Chairman Jerome Powell amplified the rhetoric. its support and promises “pain” for anti-inflation services. The market pullback then culminated in an October low with a drop of more than 25% from the S&P’s record high. Though the symmetry may indicate wariness “We’re wary of them.” we start again” ahead of Wednesday’s Fed policy decision, but there have been enough changes – almost all for the better – to begin to benefit the recovery of doubt. Inflation is definitely falling, fourth-quarter GDP slow but certainly positive, Fed officials have done nothing to push back against market expectations for a quarter point rate hike next week. Signposts are positive And from a tape reading perspective, the rhythm and gait of risk retaking in early 2023 has received some respect, various indicators that money is moving. purpose and urgency. The broad bullish-bearish line has made new highs in the cycle. The cyclical sectors dominate, with steel stocks hitting new highs and credit card issuers going bust this month on the back of strong results and a trend of modest loan losses, as Popular late 2022 bets on buckling consumers have yet to be redeemed. All last year, the Federal Reserve tightened its grip amid a slowing economy, as bond yields and the dollar rose and the S&P 500 index remained locked in a persistent downtrend even as the U.S. Corporate earnings hold at record highs. In recent months, the Fed appears to be nearing completion of rate hikes as the economy shows some traction, bond yields and the dollar strengthen, and the market’s reaction to earnings declines. Some impressions suggest that the consensus is expected to be worse. As of the end of last week, the index was above the unfortunate and widely watched downtrend line. In the process, the S&P has veered in a positive direction away from the path of the devastating market crash of 2007-2009, a doomsday loop trajectory it has reasonably followed since a month. prior to. Such “analogue charts” are always intended for entertainment purposes rather than practical guidance, although they provide a reminder of how past cycles may be in tune with the present. The market is also clearly doing better now, to a lesser extent, than it was during the 2000-2002 slide – also caused by the overheating tech frenzy, low unemployment, and the Fed’s tightening policy. book. Clearly things could head south to return to the trajectory of the post-tech bubble collapse of the early 2000s. But there was no temporary rally in the S&P 500 during that time period. sending it far above the 200-day moving average as the current index. In other words, the market itself is acting in a way that builds confidence to the seemingly sound but largely unconvinced view (as described here two weeks ago) that the October low will If it proves sustainable, the economy will come out of a nasty recession for longer than feared and perhaps an uptrend of the consequential is underway. So go January? While much will be made of January’s claimed strength in predicting how the year will turn out for the market, there have been too many moves in the wrong direction to bring much strength. strong this prediction. In a more targeted analysis, Steve Deppe of Nerad + Deppe Wealth Management noted on Twitter that the S&P is now on track to rally 10% or higher in 4 months while remaining lower over the past 12 months. Nine such previous setups since 1954 were followed by price spikes over the next two to 12 months, with above-average gains and minimal losses. Sure, it’s data mining and limited sample size, but should keep your mind open for what could happen next. All of this is impressive, if not decisive. But of course, in the markets, the next test is always waiting. After breaking above that old downtrend line and moving higher above the fourth positive sixth band in a row is getting a bit hot in the short term (watch it hit the upper trend band and the relative strength index). for the second-highest 14-day period of the past year ), though not overbought. Adam Crisafulli, founder and strategist at Vital Knowledge, who has a positive view on stocks, wrote to clients on Friday: “Stock support sources remain in place (reinforcing de-escalation forces). inflation, currency devaluation, and earnings headwinds), but the S&P 500’s Ceiling is still 4100-4150 (the level is near) and if things continue at this rate for Fed, it’s possible [Feb. 1] decided to cause a ‘sell the news’ reaction. Therefore, the short-term risk/reward looks less attractive.” Just above 4100 is the late-November/early-December high and the level at which the S&P 500 futures price/earnings ratio will get back to 18, a more demanding level even if it remains inflated by the half-dozen biggest stocks and the equally weighted S&P 500 index remains below a P/E of 16. low-quality reports It’s also difficult to decipher the market’s authentic macro message from a rather exaggerated version of the January usual effect, in which the previous year’s worst stocks and regions there was a lower quality of the market revived in a new year.. short selling of bankrupt speculative fares (Beyond Meat, Opendoor Technologies, electric car upstarts) skyrocketed.. the data certainly didn’t. going into over-optimistic territory Deutsche Bank says its consolidated positioning measure shows equity investment at its highest level since April, but still at the lowest level in 25% of total index k Since 2010. Undoubtedly, the leading indicators of the possibility of a recession continue to pop up on everyone’s screens, from the Treasury Bond Yield Curve to the Leading Economic Indices. Most are reliable, with unpredictable delivery times, though now largely driven by “softer” metrics like business surveys, consumer expectations and the like. on one’s own. And let’s not forget the stock market was weaker before these signals broke out than has typically led to past recessions, so it all adds up to static listening. If the underlying message of the stock and bond markets is that inflation was last year’s problem, the Fed will pause and perhaps be ready to cut rates shortly after, and corporate earnings won’t crash. then that suggests there must be a good deal to keep the stock supported. However, even with the imperative macro fears and market swings along the way, that doesn’t mean investors are necessarily stuck in the same old doomsday loop.