S&P 500 outlook, plus Gold, supply chains, Dow strength, investing w/o emotion, and Finland
The Sandbox Daily (4.5.2023)
Welcome, Sandbox friends.
Today’s Daily discusses:
favorable technical and seasonal trends support S&P 500 strength
Gold bugs unite
supply chains normalizing
Dow strength undeniable
investing can be emotional; don’t let it be
Finland joins NATO
The sun is out, the birds are chirping, and the Masters tournament (!!) in Augusta, Georgia starts tomorrow – so today’s newsletter is decidedly positive. Wishing you the same.
Let’s dig in.
Markets in review
EQUITIES: Dow +0.24% | S&P 500 -0.25% | Russell 2000 -0.99% | Nasdaq 100 -1.01%
FIXED INCOME: Barclays Agg Bond +0.34% | High Yield -0.56% | 2yr UST 3.798% | 10yr UST 3.309%
COMMODITIES: Brent Crude -0.19% to $84.78/barrel. Gold -0.03% to $2,037.5/oz.
BITCOIN: +0.38% to $28,231
US DOLLAR INDEX: +0.32% to 101.916
CBOE EQUITY PUT/CALL RATIO: 0.77
VIX: +0.42% to 19.08
Quote of the day
“Most of us spend too much time on what is urgent and not enough time on what is important.”
-Stephen Covey, The 7 Habits of Highly Effective People
Favorable technical and seasonal trends support S&P 500 strength
After spending 2022 in a well-defined downtrend, the S&P 500 just finished its 2nd consecutive positive quarterly return in a row – up +7.1% in 4Q22 and up +6.5% in 1Q23. Doesn’t smell like a bear market to me.
There is compelling historical data that shows when the S&P 500 gains >5% in back-to-back quarters, more strength is ahead for stocks, not less. This market signal has occurred 23 times since 1950 and the market was higher 20 of those times for an average gain of +13.5%. And if you look closely at the dates, most of these signals didn’t occur before a new bear market took over.
The reason the index has had the opportunity to go up is because the list of stocks making 6-month and 12-month New Lows peaked back in June 2022 !!
Reviewing seasonality patterns, this part of the calendar is favorable across two fronts.
1) Q4 of Year 2 to Q2 of Year 3 is the strongest window of the 4-year Presidential Cycle (16 quarters in total) going back to 1950, and April has been positive 17 of the last 18 pre-election years (aka 2023).
2) April is the 2nd best month on average for stocks since 1950 (yellow bar charts below).
With all these trend improvements, we see 80% of SPX stocks trading above their 10-daily moving average, while the longer-term 200 DMA is flattening out and potentially troughing. This makes sense as the S&P 500 has been making higher highs and higher lows since the October bottom.
So to review the technical scorecard: quarterly candlesticks, market breadth, momentum, and seasonality all favor U.S. stocks right now. Now we just need further upside momentum on the follow-through.
Source: Ryan Detrick, All Star Charts
Gold bugs unite
Amidst the macro volatility, gold has enjoyed a renaissance as a place of refuge during periods of uncertainty.
The price of Gold has broken through $2,000/oz, now within 2-3% of its all-time high.
Against other currencies around the world, Gold is already trading at an all-time high.
Source: Jeroen Blokland
Supply chains normalizing
Global manufacturing output rose marginally for a second month in a row in March, one largely driven by improving supply conditions that has helped companies to work through their backlogs.
Global manufacturers remained generally upbeat about the growth outlook in the year ahead, although optimism dipped to a three-month low.
As JPMorgan notes: “The supply chain woes of the past two years now look to have completely unwound while the resulting pricing pressures also look to have faded are now back to levels seen in 2018.”
Source: Ned Davis Research, S&P Global Market Intelligence, JPMorgan
Dow strength undeniable
You can’t have a bull market without bulls, or new highs, for that matter. That’s why it’s critical to look beneath the surface for signs of market health.
The advance-decline line is a classic breadth indicator, measuring the number of advancing issues against the number of stocks that declined on the day.
Check out the Dow Jones Industrial Average's advance-decline making new record highs:
This is a significant improvement in internals and speaks to the strength and broadening participation at the individual stock level for the Dow components. More stocks are going up, not down.
This kind of internal strength is a bullish development and bodes well for the index, suggesting new highs at the index could follow.
Source: All Star Charts
Investing can be emotional; don’t let it be
Humans are born to be bad at investing. Expect your emotions to play all kinds of tricks on you.
The financial journey to our end goals is not a straight line of success; in fact, nothing in life is. So don’t treat investing any different.
Focus on what matters: family, health, free time, meaningful relationships, learning, etc. Over time, markets will take care of themselves.
Source: Brian Feroldi
Finland joins NATO – welcome aboard, Fins!
Yesterday, the Finnish flag was raised outside the NATO headquarters in Brussels as Finland formally joined NATO on Tuesday, as the North Atlantic Treaty Organization celebrated its 74th anniversary.
Having formally applied for membership following Russia's invasion of Ukraine alongside Sweden, Finland became the 31st member of the military alliance comprised of the United States, Canada, and 29 European nations.
Despite adding less than 1% to the total population of NATO member countries, Finland's accession roughly doubles NATO's boarder with Russia, which has threatened to take "counter-measures" and described the accession as an "encroachment on Russia's security and national interests."
Cool, fun things about Finland: the national food is Karelian stew (see below), it’s often listed as the happiest country in the world, saunas are a popular activity, 74% of the country is covered by forests, and the Northern Lights dazzle the night time skies!
Source: Statista
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.