The State of the Markets in 2024
Source: MarketWatch DJIA YTD
The Dow Jones Industrial Average (DJIA) began the year at 37,715 and is currently trading around 39,568 at the end of the first quarter. The 52-week range of the Dow Jones is 31,805.18 on the low end and 39,889.05 on the high end. Incredibly, the one-year performance of the all-star index is 22.75%, but the year-to-date performance is a lackluster 5.00%. The premier components in the index include Boeing Co., Apple Inc., Amazon, United Health Group Incorporated, Merck & Co., Salesforce, Coca-Cola, International Business Machines Corporation, Procter & Gamble Co., Intel, and scores of others.
The Fear & Greed Index
Source: StockCharts.com SPX
According to the CNN Business Fear and Greed Index, the reading is currently 71, indicating elevated greed with a risk-on approach by traders and investors. Interestingly, the reading a month ago was 73; little has changed for the year-to-date. This index is an important barometer of sentiment. It typically dovetails with high levels in the stock markets, indicating bullish sentiment in expectation of further gains. The S&P 500 index, when juxtaposed against the 125-day MA, reveals a strong upward bias, with levels hovering around 5,234 for the S&P 500 index and 4672 for the 125-day moving average.
Based on information provided by StockCharts, the SPX (S&P 500 index) Bollinger bands, the lower band sits at 5037.86, the middle band at 5140.02, and the upper band at 5242.17. Currently, the level of the SPX is neck and neck with the upper Bollinger band, indicating a reversion to the mean is possible. However, momentum remains, and the trend is the friend. The unprecedented gains over the past year remain in effect, with the 50-day moving average at 5009.66 and the 200-day moving average at 4599.82. Barring mass profit-taking or a shock announcement, short-term expectations remain positive
Leading Trading Platforms Back up What We Are Seeing
As indicated on respected online trading platforms like MetaTrader4, stock price strength supports the argument that extreme greed characterizes activity. As of March 21, 2024, CNN Business puts this figure at 6.61%. Similarly, stock price breadth – McKellen volume summation index – is at 1446.81. Notably, the put and call options – negative and positive sentiment – reveal important information about the current performance of the stock market. The 5-day average put/call ratio – an important overall activity barometer is currently at 0.81. That means that for every put (sale or short), there are 1.2345 calls (buy or long call) options. This speaks volumes about the way traders and investors feel.
Therefore, we expect market volatility to remain significantly lowered during periods of greed or extreme greed. The 50-day moving average for market volatility has diminished significantly since October 2023, dropping from a figure of 21 to its current reading of 12.82. Viewed in perspective, this means that the whipsaw action pricing in equities, commodities, indices, and currencies is tempered, with more stable movement in one direction – upwards. The market’s mood is especially important since most buying and selling activity is not based on technical or fundamental analysis – it’s based on perception. When trading activity is buoyant, a wave washes over market participants. * Source: cnn.com/ markets/ fear-and-greed
Future Prospects of The Financial Markets
Recently, the Fed FOMC announced its decision to maintain the Federal Funds Rate, pending analysis and review of inflation data. At its latest meeting, the Fed decided to leave the rate at a 23-year figure of 5.25% – 5.5% – a multi-decade high. FOMC policymakers maintained their predictions that the FFR will decrease by 0.75% before the end of 2024. This will be achieved by way of three rate cuts in the next nine months. Ultimately, the Fed is targeting a rate of 4.5% – 4.75% by the end of 2024.
In short, businesses and individuals must keep paying high-interest rates on borrowed money and personal and business loans. However, the intent to drop interest rates had enough power to boost sentiment with a frenzy of buying heading into the final stretch of March 2024. Rising interest rates are designed to curb inflationary pressure.
Since stakeholders tend to reduce borrowing during periods of high interest and inflation. Conversely, falling interest rates are met with an increased appetite for expenditure and economic growth. Businesses and individuals pay less on borrowed funds, which can translate into increased returns in the form of profits and dividends for shareholders.
