Boom or Bust

by JDH on January 28, 2023

I must admit that I am confused.

My “Big Picture” thesis is that the economy is already in a recession.  Interest rates are high, the yield curve is significantly inverted, and those conditions lead to a recession.  We also have a war, massive government debt, and increasing consumer debt, which leads to lower growth, which is the very definition of a recession.

And yet:

The stock market is up over 6% year to date, and January isn’t over yet.  Gold, and Bitcoin, are up even more.  The shorts are getting crushed.

Is the bear market over, or is this merely a bear market rally?  That’s a tricky question.  Here’s the S&P 500 Index:

Since the peak at the start of 2022, the SPX has been in an obvious downward channel.  But this week it broke out of that channel and is now testing the highs from December.

The SPX hit highs of just under 4,100 on

  • December 1, 2022
  • December 13, 2022
  • January 27, 2023

That 4,100 level is either a triple top, and a resistance level, in which case the bear market rally is over, or a decisive breakthrough that level this week will indicate the end of the bear market.

My guess is that we will see continued strength this week, perhaps up to the 4,200 level.  Perhaps the market is strong for the next month or two.  I don’t know.  But I don’t expect to see a new high (4,800) this year, or next year, or anytime soon.

Interestingly, bonds remain strong, so my bets on fixed income are working out well.

Given my state of confusion, I will sit tight, hold my positions, and see what happens.

Time will tell.

See you next week.