Market Notebook

As measured by the ticker SPY, U.S. Equities finished lower during the last week, while bonds, as measured by the ticker BND, ticked slightly higher.

From a technical analysis standpoint, equities appeared to remain in consolidation while bonds appeared to remain in a strong downward trend. As mentioned previously, the key price area to watch in the S&P 500 is around the January 24th lows as measured by ticker SPY. A retest of this area could easily occur in the coming week. If price holds at or above this area, the S&P remains in consolidation. A break of these lows might suggest that the S&P is establishing a downward trend. The above price action suggests caution, and thus it appears prudent to avoid opening new equity or bond positions unless necessary.

The Conference Board’s Leading Economic Index, or LEI, declined by 0.3% in January. Of the economic indicators we follow, the LEI is most important. The decline in January appeared to result from accelerating inflationary pressures and supply chain issues associated with Omicron. Although the expected pace of growth has slowed, the U.S. real economy is still expected to grow by approximately 3.5% in 2022. The LEI data supports the conclusion drawn from the technical data that caution is suggested over the short term even though the overall outlook for the year, according to The Conference Board, remains positive.

According to comments by President Biden, an invasion of Ukraine is not yet off the table in the coming week. Beware this possibility.

Overall, the past few weeks have been difficult for most portfolios as both equities and bonds have declined simultaneously. As mentioned previously, retracements and pullbacks are a normal function of markets and are to be expected. A silver lining of retracements and pullbacks is that they provide buying opportunities once the overall environment turns positive. Be on the lookout for such opportunities. Remember that the future appears bright for long-term investors who hold balanced portfolios.

All the best.