ARTICLES

Correction

The progress of the S&P500 index of the 500 largest companies on Wall Street is important because stock markets around the world, including the JSE, tend to follow it sooner or later.

On 19^th January this year, something momentous happened when the S&P broke above its previous all-time record high – made almost exactly two years ago at 4796.54. This upside break confirmed that, after the COVID-19 aberration and then the unusually large 25% correction in 2022, the great bull trend which had begun in 2009 was finally continuing.

The upside break gave the bullish optimists on Wall Street a licence to go a little crazy and they drove the index up almost 10% on a tidal wave of optimism to a new record high of 5254 on 28^th March 2024. The optimism was built at least in part on overwhelming excitement about the effect of artificial intelligence (AI) in such companies as Nvidia. It was also fuelled by the extraordinary growth in the US economy even in the face of record high interest rates. Consider the chart:

You can see here that, after some backing and filling, the S&P500 index broke above the previous record high of 4796 set on 3^rd January 2022. What followed was an extraordinary display of bullishness and a very strong upward trend. This upward trend began to run into difficulties in mid-March 2024 and finally ran out of steam at its closing peak of 5254 at the end of that month.

We had by then for some time been warning of an impending correction – which we said would probably take the index back to its previous record high of 4796. It is quite common for a previous resistance level, once it is penetrated, to become the support level in an upward trend.

The market action still indicates a significant amount of investor bullishness. There are still plenty of frustrated bulls looking to “buy the bottom” – but right now this overdue correction is just too strong for them.

So far, the index has fallen about 5,5% - but we expect that it will probably fall further to somewhere close to resistance at that previous record high of 4796. Within the correction you should expect some small rallies – nothing in the markets moves in a straight line! On that point, it is rare for the S&P500 to fall on six consecutive days as it has just done, so we expect it to go up on Monday the 22nd of April 2024.

From a fundamental perspective, the US monetary policy committee (MPC) having held rates unchanged at its latest meeting is talking about rates having to remain high for longer. The first rate cuts are now only expected at the September meeting.

The fact that the US economy created 303 000 new jobs in March 2024 shows that it is still far from cooling down despite the fact that rates have been at record levels for a while.

The correction on Wall Street is being followed around the world on other markets.  London (FTSE250) is down 2,7%, the German Dax is down 4% and the Nikkei in Japan is down 9,3%. The JSE, although generally more volatile, is about 5% off its recent highs.

In our opinion, this is not the start of a bear trend. It is simply a normal, healthy correction within the long-term bull trend. It will almost certainly end fairly soon and then the S&P500 will go on to break up a new record high.

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PDSNET ARTICLES - MAY 2022

Teetering on the Edge

Last Friday, the S&P500 actually dipped into bear market territory during the trading day. It went as low as 3811.28 before staging a remarkable recovery in afternoon trade to close at 3901.36. This resulted in Friday’s candle becoming what is known as a “hammer” – a candle with a very short body and a long downward

Bitcoin versus Gold

Cryptocurrencies cannot really be considered an investment because they have no fundamentals. Their value is derived exclusively from the belief of the people who invest in them. When belief in Bitcoin is strong the price rises and when it is weak, the price falls.

Bitcoin cannot be regarded as a “safe haven” asset

Uncertainty

Most investors would probably agree that there is a considerable amount of uncertainty in equity markets at the moment. From a fundamental perspective, that uncertainty has come about because of:

1. The force with which the central banks of the world (especially the US Fed) will “stamp on the brakes” to reduce