Market Notebook

by | Jan 30, 2022

Discussion – 

Last week was another difficult week for U.S. equities and bonds alike. Global equities were mixed.

The October 4th, 2021 technical support area for the S&P 500 was tested and held, with prices closing above the October lows. This suggests the January 24th low could be the low for the recent retracement in the S&P. If true, the coming week could present buying opportunities for those equity instruments on investor’s buy lists.

Much of last week’s volatility appeared associated with the Federal Reserve meeting and rate hike speculation. Market participants are coming to grips with the fact that the Federal Reserve is likely to raise rates soon due to continued inflationary pressures.

Bonds continued in a downward trend. It seems likely bond prices will continue to struggle, at least into the first actualized Fed rate hike and perhaps longer. The Federal Reserve must likely get inflationary pressures under control for bond investors to be confident buyers.

Psychologically, last week was taxing on those watching their portfolio balances. Please remember one strives to be a seller of highs, not lows. Protecting portfolios is a task that investors should undertake before pullbacks start, not after they are well developed. After pullbacks are well developed, investors are typically well served by holding their noses and buying something. Since it’s always hard to tell whether there is more pain to come, choose wisely the amount of buying done at any given price point. Spread out the purchases in case lower prices can be found in the future. Remember, the U.S. is creating the future at breakneck speed, and despite the challenges, the long-term future appears bright.

Should equity prices retreat again in the coming week, pay attention to the October 4th lows. If SPY closes below the October 4th lows, don’t be surprised if equities move a fair amount lower as the next obvious area of technical support is roughly 8% down from the October 4th lows. If the October 4th lows hold, don’t fret.

All the best.