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Hope everyone had a great Labor Day! The shortened week in the market made it feel as if stocks had something to prove after having the extended weekend to think about their 3-week losing streak. Tuesday looked as if that streak was going to continue, however sentiment turned and powered a strong move through the rest of the week. Both the S&P and Nasdaq ended the week back above their 50-day moving averages.
What’s even more impressive is that the market continued to push higher this week, regardless of the spattering of news headlines which could’ve had more adverse effects than they did. China extended its lockdown of Chengdu, Russia claimed that the shutdown of the Nord Stream 1 pipeline could be long term and pointed blame to western sanctions, a handful of large reserve banks announced aggressive rate hikes, and the Fed and other officials continued to emphasize the need to fight inflation.
The market was immune to bad news this week! It also pushed higher despite a jump in market rates, volatile foreign exchange movements, and a Wall Street Journal report that predicts a 75-basis point rate hick at the next FOMC meeting.
Still, stocks stayed strong under the weight of rising rates and press that confirms it. The market’s bullishness even seemed to become its own self-fulfilling catalyst as a sign that the market had already priced in the next rate hike.
What’s especially odd, is that the market was particularly bearish on Tuesday but quickly turned that around. The American Association of Individual Investors Survey showed unusually low bullish sentiment and unusually high bearish sentiment. Bearish sentiment among investors hit 53.3% versus a historical average of 30.5%. Bullish sentiment fell to 18.1% versus an average of 38%. Those readings and their widespread must’ve been taken as contrarian indicator to buy/swing trade beaten up stocks. The view that the market was in an oversold condition sparked some bargain buying efforts that picked up pace later in the week.
Mega-caps led this week. The Vanguard Mega-Cap 300 Growth ETF ($MGK) jumped 3.99% this week. All 11 S&P 500 sectors made gains for the week, 8 of them making at least +3.2%. With the market’s strength this week, the CBOE Volatility Index fell 10.5%.
Next week’s data releases could prove to be significant if strength can’t carry through from this week. We have the next CPI reading which could give further insight into the next Fed action, a sentiment reading, and retail sales.
I personally think this rally may continue for another week or so, but I am still of the longer term bearish mindset. Maybe I am just biasedly a pessimist because I would love to be able to keep buying dividend stocks on deep discount! I tried to do that this week with my buys in Intel $INTC, $SCHD, and a few others you can read about in the portfolio update here.