Summer rebound in US stocks gains fans

The rebound in US stocks is gaining believers among investors who study market trends, bolstering hopes for equities in the second half of 2022.

After notching its worst first half since 1970, the S&P 500 has bounced some 15% from its mid-June low, fuelled by stronger-than-expected corporate earnings and hopes the economy can avoid a recession even as the Federal Reserve raises rates to tame inflation.

Past rallies in stocks have been short-lived this year and many market participants believe it is too early for optimism.

Federal Reserve officials have gone out of their way to emphasise that the central bank has plenty of work to do in bringing down inflation, and the coming week’s symposium in Jackson Hole, Wyoming, could see them once again push back on expectations of a dovish monetary policy pivot, one narrative that has helped lift stocks.

The S&P 500 closed down about 1.29% on Friday, ending a streak of four straight weekly gains.

Still, those who look to market phenomena such as breadth, momentum and trading patterns to inform their investment decisions see a more optimistic picture, and are growing convinced the recent gains in equities are unlikely to fade.

Several indicators “really suggest that the low we had in June is certainly more durable than the low we had in May or March,” said Willie Delwiche, an investment strategist at market research firm All Star Charts. “It’s a rally that can be leaned in to, not one that needs to be feared at this point.”

Among these are measures that show the “breadth” of a market move, or whether a significant amount of stocks are rising or falling in unison.

Published in The Express Tribune, August 21^st, 2022.

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