TSI #6: 99.6% of S&P 500 companies moved higher on Tuesday
Jul 24, 2022The market was in a surprisingly good mood on Tuesday. All three major indexes rallied higher. The Tuesday reading saw advancers outnumber decliners by more than 14:1 on the NYSE. The best day since December 2018.
The indexes I am referring to are: S&P 500 (500 largest companies in the USA), Dow Jones Industrial Average (price-weighted index that tracks 30 large US companies) and Nasdaq 100 (100 largest tech companies).
Why did the S&P 500 jump 2.8% in one single day?
One possible explanation is linked to inflation and interest rates. We already talked about this here: (INSERT LINK HERE FOR “Inflation is rising faster than expected”). The central bank was expected to raise interest rates by 1% (100 basis points) in order to stop inflation. As soon as this news came out, the market overreacted and immediately considered the 1% hike as a fact.
Remember, if interest rates rise, the market tends to fall. A few days later, however, news came out that the Federal Reserve will not be that aggressive. That unleashed a wave of relief across the markets.
Did anything else help boost my portfolio?
Analysts love waiting for important reports. Tuesday's rally in markets also came on the same day Bank of America Global Research published its latest fund managers survey, the firm's closely-watched gauge of investor sentiment.
They discovered that managers have an over exaggerated pessimistic view as visible in the chart below. Furthermore, expectations for profits and growth were at all-time lows, investor equity allocations at the lowest levels since Lehman's collapse in 2008, and cash levels at the highest balances since 9/11.
Bank of America chief strategist Michael Hartnett, summed this up in one sentence: “I’m so bearish, I’m bullish.” “Sentiment is so poor, Hartnett says, that the market is set up for a rally in stocks and credit in the coming weeks.”
What does it all mean for your money?
The markets have been in a bad mood for months now. Lots of negative news is circling the media and investors seem to be worried.
Such a negative atmosphere can be the perfect opportunity. Even the great Warren Buffett, spent many billions in the first quarter, thus living up to his famous quote: “Be fearful when others are greedy and greedy when others are fearful.” I would not be surprised to see more purchases when the second quarterly report of Berkshire Hathaway comes out.
Is this the bottom?
Nevertheless, I think it is still too soon to call this the bottom. Especially because it is still uncertain how the Federal Reserve will handle inflation that has been ravaging for months.
They may have to artificially create a recession in order to stop inflation (by aggressively hike interest rates). That would have a devastating effect on the overall economy and consequently the market.
To Your Financial Freedom
