Seasonal:
Bullish. January is the fifth best month for DJIA and S&P 500 since 1950. #1 NASDAQ month since 1971. However, since 2000, January has been notably weaker and in Midterm years average performance for DJIA and S&P 500 turns negative. Santa Claus Rally ends on January 4, First Five Days concludes on January 7 and lastly the January Barometer at month’s end. All three combined form our January Trifecta Indicator.
Fundamental:
Mixed. Q4 GDP is now estimated to be 7.2% by the Atlanta Fed’s GDPNow model, down from earlier estimates. Inflation metrics are elevated and running at multi-decade highs. Omicron variant is spreading rapidly and could lead to further supply chain disruptions. However, employment metrics remain positive and trending in the favorable direction while corporate earnings have been solid and are projected to remain so.
Technical:
Rebounding. Late November/early December weakness hit DJIA hardest as it dipped below its 200-day moving average. S&P 500 and NASDAQ only briefly violated their respective 50-day moving averages. DJIA, S&P 500 and NASDAQ appear to be at various stages of forming “W” bottom patterns as long as the closing lows of December 1 are not breached. If all three are successful, then new highs are likely again in the near-term. Failure by one or more could lead to further weakness.
Monetary:
0 – 0.25%. In response to well-above target inflation, the Fed is accelerating the pace of tapering bond purchases and has also pulled forward its expectations for actual rate hikes. Should current trends remain relatively intact for the next year, the Fed could increase its lending rate to 0.75 to 1% in small increments. Clearly higher than present, but from a historical perspective still low and substantially supportive.
Psychological:
Neutral. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors were at 42.2%. Correction advisors stand at 33.7% while Bearish advisors are at 24.1% as of their December 21 release. Thus far the typical year-end rally and its associated bullish sentiment is being challenged by the Fed and omicron. Where the market goes next is likely to be the direction sentiment takes. Current sentiment suggests a cautiously bullish stance.
JAN
2022