جميع مدونات فولرتون ماركتس في مكان واحد

Does Recent Rally Make Any Sense? Data Tells You The Truth

Written by Fullerton Markets | Mar 20, 2022 4:00:00 PM

Last week, the three major averages notched their best week since November 2020, boosted largely by growth stocks. The S&P 500 surged 6.1% from Monday to Friday, the Dow Jones Industrial Average ended the week 5.5% higher, and the technology-focused Nasdaq Composite spiked 8.1%.

After one of the best weeks in years, the question now is whether stocks will be able to hold those gains? One good news is April is historically one of the best months for stocks, so the calendar remains positive for the bulls.

While rally may seem like a surprising or even perverse response, it is worth recalling that much of what the market wants from a Fed meeting is for it to be over. This will remove a worry point from the forward calendar, and in any case, the first-rate hike has never been particularly harmful to stocks.

The average S&P 500 annualised total return, during the past dozen Fed tightening cycles, is 9%. The S&P 500 recouped nearly half of its correction losses last week as investors received highly anticipated clarity from the Federal Reserve, raising interest rates for the first time since 2018. The central bank signalled it expects to raise rates at its remaining six meetings this year.

The VIX retreated below 25 after having spent more than two weeks above 30, a period when prices paid for the nearest VIX futures was also above those of more distant months, an anomaly indicating a stressed and treacherous tape.

Data shows prior instances when the VIX had spent at least seven days above 30 and then receded below. Beginning one month out and extending to a year from that point, the S&P 500 was up 80% to 90% and returns were stronger than the norm. The downside exceptions came more than a year and a half into the 2000-2003 bear market.

Risks to be aware of

Market participants are also monitoring the war between Russia and Ukraine. Ukraine’s President Volodymyr Zelenskyy warned that if peace talks with Russian leader Vladimir Putin fail, it would mean the start of a third global war.

Ukrainian and Russian officials have met intermittently for peace talks, which have failed to progress to key concessions. Besides that, investors are also evaluating a rise in Covid cases in Europe stemming from an emerging variant.

Fullerton Markets Research Team
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