Here’s the key question for stock market investors: “Is the recession over?” Unless the data change, the answer appears to be “yes” at this time.
The stock market rallied Friday on stunningly strong May jobs data, which economists got completely backwards. There were some flaws in the calculations, but bears shouldn’t take comfort.
The jobs data are a lagging indicator. Leading economic indicators and high-frequency economic indicators are running significantly stronger than expectations. In the middle of May I wrote: “Here’s what it will take for the stock market to hit a new record within two months.” The Nasdaq COMP, has already hit a new intraday high, and the S&P 500 Index SPX isn’t far behind.
The second leg of a short squeeze is now in full swing. So where is fertile hunting ground for opportunities? It’s in lower-weighted stocks in the S&P 500. Let’s explore with the help of a chart.
Chart
Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA, which tracks the Dow Jones Industrial Average DJIA.
Note the following:
• First and foremost, everything that impacts the markets including macro-economic data, fundamentals, sentiment, risk appetite, short squeezes as well as monetary and fiscal policies get reflected in charts. It takes years of observation, hard work and dedication to learn to correctly read charts. The naysayers simply have not spent the time and effort needed to benefit from charts.
• The chart also shows the S&P 500 ETF SPY, which tracks the S&P 500; equal-weighted S&P 500 ETF RSP, small-cap ETF IWM which tracks the small-cap Russell 2000 RUT and the Nasdaq 100 ETF QQQ which tracks the Nasdaq 100 NDX.
• The chart walks you through the recent history of Federal Reserve actions. When the Fed started tightening in 2018, the stock market dropped. When the Fed started easing in January 2019, the stock market recovered. In October 2019, when the Fed started adding more liquidity, the stock market took off. In March 2020, after the coronavirus-led drop in the stock market, the Fed’s actions engineered a massive stock market rally.
• The chart shows that small-cap stocks did not make a decisive new high prior to the coronavirus stock market drop as the other ETFs did, as shown on the chart….Read more at MarketWatch.
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