This past week we saw the S&P 500 breakout from its downward trendline, a positive sign for the US stock market. As well as some supporting evidence that 2023 will be a very good year for investors.
Reversal of Trends
The major indices are starting the trade above their respective downward trends. If this pattern continues, we may start to see money quickly moving off the sidelines as investors begin to fear missing out.
S&P 500 Index:
NASDAQ
Russell 2000:
Where the Strength Is
Looking at the strength of the underlying market as the S&P 500 broke above its downward trendline, we can see further expansion in the US stock market.
During this time consumer discretionary stocks have been outperforming consumer staples. We typically will see outperformance from names in the consumer staples sector, as consumers pause on purchasing large ticket items and instead focus on “recession-proof” purchases such as toilet paper and toothpaste.
International Stock Markets
It is not just in the US that we are seeing strength. International markets have been doing very well since their 2022 lows.
MSCI EAFE
This is all being driven by the continued weakness in the US dollar:
US Dollar (DXY)
History and 2023
As the US stock market started to reverse its downward trend, investors are wondering if this is the start of a big upward move in stocks.
History says yes.
Since 1950, US stocks have performed very well if the following conditions are met:
1) Stocks are down from the previous year
2) Santa Claus rally occurs
3) Positive return during the first 5 days of the New Year
4) Positive return in January (“As January goes, so goes the rest of the year”)
1 through 3 have occurred, and unless something dramatic happens in the stock market, January will end on a positive note.
When all 4 occur, the S&P 500’s average return was 27%.
What about the widely forecasted recession of 2023? The S&P 500 provide a positive return during the recessionary periods of 1954, 1958, and 1961.
While past returns is no guarantee of future results, the data is going to be hard for many investors to ignore – especially if the current trend reversal in the US stock market continues.
