Market Notebook

Both equity and bond prices closed lower on the week last week.

Equities appear established in a downward trend. From a technical analysis perspective, the S&P 500, as measured by the ticker SPY, closed right at a key area of technical support. A break lower from this area of price support would appear to be bad news for equities. The next areas of supposed minor and major support would be approximately 5% and 9% lower, respectively. It certainly looks like things could worsen for equities before they get better.

As measured by the ticker BND, Bonds failed to hold within a recently established area of technical consolidation and moved sharply lower on the week. This appears to reaffirm the longer-term downward trend.

From a price action and technical analysis perspective, both equity and bond prices appear weak. Although there are equities that appear to be bargains, the overall environment does not appear supportive of purchasing those names at this time. It seems prudent to remain on the defensive.

From a Geo-political perspective, the world is a messy place at present. Many of the risks manifesting themselves in markets were not on investors’ radar as 2022 began. Regardless of the specific risks, most appear as though they will translate into supply disruptions and continued inflationary pressures. Strong inflationary pressures will likely be negative for both equities and bonds.

To counter some of the dreariness in this report, I would like to mention that the United States is still a dynamic place with a dynamic and adaptive economy. A host of companies are doing outstanding work in solving some of the world’s most intractable problems. The longer-term future looks bright. It just happens to be raining at the moment.

All the best.