In July, stocks continued their upward trend, with the NASDAQ rising 4.1%, the Dow Jones Industrial Average increasing 3.4%, and the S&P 500 gaining 3.2%. All 11 US stock sectors saw positive returns for the second consecutive month. Inflation remained below 3% for the first time in over two years, and Core Inflation in July was below 5% for the first time since November 2021.
However, there are concerns about the market’s prolonged uptrend without significant corrections since June. A large down engulfing candlestick on July 27th indicated a potential pullback after the SPX fell below its short-term MA (21) in the following days. While the uptrend momentum is strong, the SPX failed to break out above the top line of the upward channel that started in early 2023, and it might test its first support at 4385. This technical mean reversion becomes clearer when looking at the weekly chart, and the SPX could potentially test its second support at 4328 while downward pressure accumulates. Unless these support levels are broken, the big picture of the uptrend remains unchanged.
Recently, Wall Street’s biggest bear, Mike Wilson, admitted he was wrong about a potential plunge in the US stock market as the S&P 500 is close to erasing 2022’s decline. However, it’s important to note that an inverted yield curve has accurately predicted all 10 recessions since 1955. The average lag time can span 12 to 24 months according to the San Francisco Fed.
While an inverted yield curve serves as a warning signal, it doesn’t provide insight into the severity or duration of looming recessions or how investors should respond. Thus, it’s crucial for investors to remain vigilant and be prepared for market volatilities, as they are an inherent part of the investment landscape for each investor. Happy investing!
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