Thursday, September 29

Three indicators that could predict the behavior of Wall Street in 2022

The “Christmas rally” has left a high note on the american market with advances towards the latest highs. There are three indicators that could predict what the 2022, according Ihsaan Fanusie and Yahoo Finance.

The S&P 500 it set a record for the second day in a row on Tuesday, and subsequently fell somewhat in light of a small sell-off in tech stocks at noon.

The last five trading days of the year and the first two trading days of the year Next together are usually the most important week of the year for the market. The 1.2% average growth on the S&P 500 during the period from [1945 it is the longest of any seven-day period.

Why do these days work so well historically?

Animal spirits, as he would say 20th century economist John Maynard KeynesThey have a lot to do with the Christmas rally.

“It is the result of feeling,” he said Sam Stovall, Chief Investment Strategist, CFRA Research, on the causes of the rebound. “Because investors know that if the market does well in January, it generally does well throughout the year. But if we find that a lot of money has entered the markets, immediately, then the indication is that it is likely to be a very good year. “

“Investors anticipate that the period is approaching and that stock prices are about to rise, so they are more likely to invest money for higher returns,” explained Stovall.

“The first five days provide an early warning signal on how the market is likely to perform throughout the month,” Stovall wrote in the CFRA report. “And it has done so with impressive precision, being correct two out of three years for both ascending and descending signals. In addition, a positive result for the stock market during the first five days of January improved the probability of an annual price increase by a 12,8%, as well as an improvement in the 82% FoA“.

And as the old Wall Street adage goes, “So goes January, so goes the year.” The third indicator, which Stovall called “the January Barometer”, establishes a correlation between the performance of the market in January and the following 11 months.

“If the S&P 500 continues to perform positive for the entire month of January, historically the prospect of a positive full-year performance has improved, as the annual average price gain rose to 15.9% and the FoA (Frequency of Advance ) increased to 87% ”The report noted.

How can we interpret these barometers?

“The biggest conclusion that investors should draw from the barometers is that there is data important enough to assume a causal relationship between the market performance as of the end of December / January and the performance of the broader year”Stovall stressed.

“Not all of the price gains for the year were concentrated in the first month of the year, as an increase for the S&P 500 in January was followed by an average increase of 11.3% during the remaining 11 months of the year, and the market it posted 11-month FoA 83% of the time, ”he wrote in the report.

Although January’s earnings appear to set the standard for the rest of the year by setting investor attitudes and expectations, Stovall stressed that these indicators are not guarantees.

“Investors should always view history as a great guide, but never a gospel,” Stovall said. Past performance “gives a pretty strong clue of what could happen, but it’s certainly no guarantee.”

In 2022, the market is likely to face challenges of the COVID pandemic ongoing, as well as the high inflation and the Federal Reserve’s attempts to control it.

“When you think about some of the headwinds that could alter the history of these different barometers, if they all kick in,” Stovall commented, adding that the next variant of COVID should be a top concern.

The variante Omicron It has been the latest strain of the coronavirus to spread through all 50 U.S. states.Although recent research suggests that Omicron cases are less severe than previous strains of the virus, it is highly transmissible and has already had an effect on demand for consumers in some industries, while others remain relatively unchanged.

Second, the Federal Reserve has made it clear that he intends to increase interest rates in response to high inflation. Many economists expect these rate hikes to begin sometime next year.

“That’s a concern because if the Fed is too aggressive in raising rates, that could send the market into a tailspin,” Stovall said. “Also, historically, we have seen a multiple PE contraction in a rising interest rate environment.”

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