U.S. stocks were brutalized at the onset of 2015 but have since rebounded, and now there is a coming “judgement day” for markets, which experts say will determine the outlook of America’s economic future.
The S&P 500 is down only 1 percent year to date, despite the worst start for U.S. stock indices in history. Experts are looking to the S&P 500’s 200-day moving average for clues on where the markets are headed long term. Analysts diverge on what the numbers are saying however, with some predicting a fresh bull market and others an overall decline, reports CNBC.
“When we broke above this 1,950 level, the pain trade flipped from down to up,” Craig Johnson of Piper Jaffray told CNBC. “There was a quick relief rally right up to this 200-day. But now it’s Judgment Day.”
Johnson is trying to determine whether the 10 percent rise the S&P 500 enjoyed over the last month is a “relief rally” in response to the new year market thrashing or the beginning of a long term rise. Johnson says markets will ultimately break through the 200-day moving average barrier and edge much higher.
“The last several times we’ve seen these kinds of major ‘buy’ signals with our work, the market’s been meaningfully higher,” Johnson told CNBC. “This 200-day, like a rusty door, is going to get pushed on a few times but then will ultimately yield another leg higher.”
Industry experts disagree on their interpretations of the current movement in the markets, with many noting the trend line for the 200-day moving average is still declining. While down only a percent year to year, the S&P 500 is well short of highs hit last August. Jack Ablin, chief investment officer at BMO Private Bank is taking a bearish position, warning the declining moving average of the S&P 500 and tight credit conditions “disturb” him, reports CNBC.
“We’re in a breakdown condition,” Ablin told CNBC. “While overall yields that corporations pay may be at or just slightly higher than they were say six months ago, spreads remain pretty aggressive, suggesting risk aversion.”
The Federal Reserve meets this week to decide what they will do with U.S. interest rates. Federal Reserve Chair Janet Yellen raised rates for the first time in a decade in December, however market volatility in 2016 put pressure on the Federal Reserve to reverse course. Experts expect the Federal Reserve to begin laying the groundwork this week for higher rates later in the year due to potentially good news on inflation targets and a slight recovery in stocks.
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