Bullish. February’s long-term track record is mixed. In all years February ranks no better than seventh. However, in pre-election years, February’s performance generally improves with average returns all turning positive. NASDAQ performs best, gaining an average 2.8% in pre-election-year Februarys since 1971. Russell 2000 is second best, averaging gains of 2.5% since 1979. DJIA and S&P 500, the large-cap indices, tend to lag with average advances of around 1.0%.
Neutral. According to Investor’s Intelligence Advisors Sentiment survey bulls are at 45.8%. Correction advisors are at 33.6% and Bearish advisors are 20.6%. At current levels, sentiment is essentially flat. Bearish and correction advisors combined outnumber bullish advisors, but not by a significant margin which leaves room for further gains. The pace of gains is likely to cool if bullish sentiment continues to rise.
Firm-ish. Near-term outlook remains fair. Unemployment is low, the economy is still creating jobs each month, corporate earnings, although slowing, are forecast to continue growing and Atlanta Fed’s GDPNow model is forecasting 2.7% growth for Q4 (official first reading for Q4 is still delayed). There has been an uptick in initial weekly jobless claims, but some of the increase is typical for January as part-time holiday help is let go. Housing and autos are a soft area of the U.S. economy. Stabilizing interest rates could bring some improvement to these markets. Warmer weather may also help.
Recovering. DJIA, S&P 500, NASDAQ and Russell 2000 have all rallied briskly after bottoming on the day before Christmas. Relative strength, Stochastic and MACD indicators are all positive, but stretched. An early December death-cross remains on the charts. Indexes are back above their respective 50-day moving averages but further gains are needed to reclaim their 200-day moving averages.
2.25-2.50%. Patient is the new word from the Fed as it quickly changed course and established a much more dovish stance. What took so long is anyone’s best guess. Inflation appears just about perfectly under control while growth is forecast to cool, not run away. A pause in tightening seems to align well with incoming data and that is likely what will happen this year which could prove to be bullish for stocks.