US stock market bulls take heart from surprise gains

Steady improvements in gauges of momentum and sentiment in recent weeks has seen optimism grow among many investors.

The S&P 500 rose over 6% in January, driven in part by hopes that the Fed will be able to contain surging inflation.

US stock market bulls are taking heart from a range of market signals pointing to an upbeat year for Wall Street, as shares sit on impressive gains despite deep worries over rate hikes by the US Federal Reserve. 

Such signals are not foolproof, as weak outlooks for corporate heavyweights such as Amazon and Microsoft, and a blowout US employment number last week, heightened expectations for further rate increases. The S&P 500 index nonetheless remains up 7.7% year-to-date, at the start of a new week.

However, steady improvements in gauges of momentum and sentiment in recent weeks reinforced the view among some investors that asset prices may be heading for a more benign period, after last year saw the S&P 500 lose 19.4% in its biggest annual percentage drop since 2008.

“We think this is a healthy picture that is being painted here,” said Ryan Detrick, chief market strategist at the Carson Group, referring to January’s gains. 

The S&P 500 rose over 6% in January, driven in part by hopes that the Fed will be able to contain surging inflation without badly damaging the economy.

When the S&P 500 has advanced in January, the market has gone on to rise in the subsequent February-December period 83% of the time, according to an analysis of data going back to World War II by CFRA Research.

Despite a recent rally that may have made stocks comparatively expensive, “the track record implies that maybe we do have some upside potential", said Sam Stovall, chief investment strategist at CFRA. 

Meanwhile, chart watchers noted that the S&P 500’s 50-day moving average rose above its 200-day moving average last week, a pattern known as a golden cross.

Willie Delwiche, an investment strategist at All Star Charts, said all five indicators on his bull market checklist were fulfilled in January. 

However, some investors believe stocks may have gotten ahead of themselves.

Friday's data showing US employment growth accelerating sharply in January renewed the inflation concerns that hammered stocks last year and ignited bets on a more hawkish Fed on interest rates.

Reuters