By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group
Equities rally on no rate hike from Fed. Every major equity sector of the market was higher last week as investors cheered the dovish tone in the Fed’s announcement that rates would remain at current levels. Though Fed Chairman Powell still tried to waffle on the potential need for future rate hikes, the market viewed the overall statements to mean the Fed is done hiking rates any further. Fed Futures jumped to a 90% probability of no rate hike at the December Fed meeting. Bond yields suffered their worst weekly decline since March of this year.
There were multiple technical signals that were breached last week that have historically pointed to better equity returns moving forward. For the past 70 weeks, hedge funds and large speculators had held short positions on equities. That streak was the longest on record, but was ended last week as speculators went long equities. The last three consecutive months—August, September, & October—were all negative for the S&P 500 Index. That is rare, happening only 6 times since 1950. In all 6 occasions, equities were higher in November. In 5 of the 6 occasions, equities were higher in December. Market breadth was also much improved last week, which has been an issue all year. The market breadth indicator (Zweig Breadth Thrust) which measures advances and declines moved from below 0.4 to above 0.615, which has also pointed to better equity returns. When this happens, equities are higher 100% of the time 6 months and 12 months out. Expect equities to continue to improve.
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Past Performance does not guarantee future results.