Market Notebook

by | Nov 6, 2022

Discussion – 

Equity prices, as measured by ticker SPY, and bond prices, as measured by ticker BND, closed higher on the week.

SPY prices pulled back last week, closing just above the 20-day exponential moving average. Although a close above the 20-day moving average suggests the possible formation of an upward trend, on the weekly timeframe, SPY appeared to reject lower from resistance, suggesting last week’s price action represented a bear market rally.

BND closed lower on the week. It appears appropriate to consider BND as remaining in an established downward trend.

Comments by Federal Reserve officials threw cold water on the idea that the Fed would dial back the pace and extent of rate hikes. Those comments, combined with a strong jobs report, appeared to contribute to the negative sentiment on the week.

From most indications, the U.S. economy remains relatively strong while inflation remains high. The Fed will likely remain aggressive when it comes to combating inflation. Market participants will continue to “read the tea leaves” as to when the Fed will alter course. It seems unlikely that equity or bond prices will be able to move sustainably higher until Fed policy sentiment improves.

Given last week’s negatively biased price action, it seems prudent to avoid equity purchases unless specific opportunities present themselves. 

Bond investors might consider avoiding bond purchases until the technical picture improves.

Generally speaking, the value factor becomes increasingly important as prices decline and time goes on. For some instruments, purchases may be justified because the price paid for the value received becomes overwhelmingly important or obvious.

It is notoriously difficult to time purchases to coincide with market lows. Therefore, adding assets to long-term portfolios at favorable prices can be worthwhile, even if those prices move lower over the short term.

All the best during the week ahead!

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.