Bullish. March is the fifth month of the Best Six/Eight Months for DJIA, S&P 500 and NASDAQ. Normally a solid month, March has historically been even stronger in midterm years ranking #4 for DJIA and S&P 500 since 1950 and #3 for NASDAQ since 1971. Average gains in midterm Marchs range from 1% from DJIA to an impressive 2.7% from Russell 2000.
Murky. Russia’s invasion of Ukraine further threatens already stressed supply chains. Spiking oil prices are likely to quickly spill over and fuel inflation further. Long-term sanctions on Russia and the likely resulting suppression of global economic activity are also likely to weigh heavy in the near-term. Positively, Q4 U.S. GDP was revised higher to 7% while employment metrics remain firm. Corporate earnings have also remained solid.
Correcting. DJIA, S&P 500 and NASDAQ are all below their respective 50- and 200-day moving averages. A death cross has formed on NASDAQ’s chart (50-day has fallen below 200-day moving average). NASDAQ is down 14.4% from its November closing high through February’s close. S&P 500 is down 8.8% while DJIA is holding up best, down 7.9%. At the intraday lows on February 24, NASDAQ was down over 20%, the threshold widely used to define a bear market. All three indexes have taken out support around last October’s lows now. The next key level of support appears to be around the lows of March 2021; around DJIA 31000, S&P 500 3750 and NASDAQ 12500.
0 – 0.25%. Prior to Russia’s invasion consensus was building for the Fed to be more aggressive with rate hikes. Considering the amount of uncertainty that has been introduced by the invasion and sanctions our view that the Fed will likely only raise rates four times this year still appears reasonable. Spiking energy prices could cause inflation to spike higher, but the Fed is likely to view that as transitory and remain committed to it data-dependent approach. Rates will be higher however, even at 1 to 1.5%, they are still low compared to historical levels (and will still remain negative when compared to inflation’s projected trajectory).
Neutral. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors have retreated to 32.2%. Correction advisors stand at 36.8% while Bearish advisors are at 31.0% as of their February 23 release. The continued swelling of the Correction and Bearish camps suggests that cash has likely been raised by this group. Historically, the best buying opportunities have occurred when Bears outnumbered Bulls (occasionally for weeks). This week’s trading and geopolitical events has the potential to begin to satisfy these criteria by sending more advisors into the Bear category.