We have had the biggest rally I have ever seen, the pandemic rally which started the spring of 2020. Spurred of great finance policies of the governments of the world, the Nasdaq more than doubled in 1 ½ years. The FED injected money into the US economy big time.
Here you can see it all, the biggest rally I have seen. So around New Year’s 2021 the momentum was gone and the big post pandemic rally correction was a fact. The Nasdaq lost 30%. The way I see it all natural with a big correction after the big rally. More psychology and loss of momentum in this correction than macro figures like GDP growth and the like. I am not the first blogger who have lined out psychology in the markets as very important.
Of course I see the importance of rate hikes making future earnings less worth. It seems the stimuli into the pandemic economy made some ground for the inflation we see now. One of the points I have made is that markets historically have not performed bad cause of inflation. You can just take a look at the markets around 1980 when inflation was high.
When it comes to rate hikes they seem done in a harsh manner and tech stocks tend to correct in a rate hike environment. Even when interest rates now are quite a bit up I have pointed out on Twitter the real interest, which is interest rate corrected for inflation is still highly negative. This is the interest rate we all pay in real terms. Negative real interest rates easily said means we are «paid» to borrow money.
As you can see in the chart the Nasdaq has found support around 10,000 several times. This is an interesting thing I have seen in the markest in my time, the importance of round numbers and how they make up support and resistance in the market.
In 2023 we have had a big bounce, again up from 10,000. What is interesting now is if this bounce can transform into a new bull market or not. As I pointed out in 2022 on Twitter there has just been four occations the markets have gone down more than one year in a row since the 1930’s. So a new market bull has history behind it.
A theory I have which I have called the earnings season perspective to stocks suggests the market tend to rally from the Quarter’s start and quite often corrects post the biggest earnings been released, type after Apple, Alphabet, Microsoft and the like. I have named this the earnings season rally and correction. I will suggest we have had these effects in 2023. The Nasdaq rallied 17% for so correct around 8%.
What we must ask us now is if March will be a bull or not. In prior blogs I have showed you the 3rd month of the quarter can vary between a bull or bear. March has started nice and if the rally continues March may become a fine month in the markets. According to the theory I have just outlined March a month to look if the next potential earnings rally of quarter 2 starts or not.
As you have learned from me before jump on the train before the train leaves the station. History supports a bull case, but this depends if we get a soft landing in the economy or not. Look for the market going higher than in prior bounces we have had since the start of 2022, this can mean the big market correction is over. We all need the market to move out of its present sideways trend. I presented my view on sideways markets in my blog “Trending sideways”. Now we will see if we get another earnings season rally quarter 2.
Good luck with your investing!