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 S&P 500 Index (SPX.I) & Gold Continuous Contract (GC.F)

The fear which had gripped markets last week has started to ease off this week. With central banks and major banks taking steps over the last few days to shore up confidence in the banking system and avoid a contagion, equity markets have started to rebound, with yesterday’s middle of the road Fed decision and forecasts helping to soothe fears and rebuild confidence.

The US central bank raised the Fed Funds rate by 0.25% as was widely expected, but it backed away from the hawkish rhetoric of a few weeks ago. At the same time, it did not hit the panic button, only mentioning the word “banking” once in the statement compared with 9 mentions of “inflation”. FOMC member forecasts for the Fed Funds rate, GDP, unemployment and inflation were not radically different from the December numbers.

The US 10-year treasury note yield has resumed its downward trend following the Fed meeting and bonds have started to bounce back. That being said, we are not out of the woods yet. Although Gold did not blast through $2,000 it continues to trade within striking distance of that key round number and the Japanese Yen has continued to reassert its role as a defensive haven. Today the Bank of England is expected to hike rates again particularly with yesterday’s upturn in UK inflation adding pressure on them to remain hawkish. The Swiss National Bank is also meeting with its own banking system in turmoil. After tomorrow’s flash PMI reports from around the world, the economic calendar is pretty quiet until late next week.

2023 has seen its shares of ups and downs so far but interestingly, a look at the performance of the 31 sectors which SIA Charts tracks has revealed a surprisingly balanced market year to date. At the close last Friday, 17 of the 31 groups had a positive return on the year while 14 were negative. 2 groups had gains of over 10%, 7 groups had gains of 5-10%, 8 groups had gains of 0%-5%. Meanwhile, 2 groups had losses of more than 10%, 1 group had a loss of 5-10% and 11 groups had losses of 0%-5%. Rather than piling up at either end of the spectrum which would suggest an overbought or oversold market, the majority of groups are clustered near breakeven with only a few outliers, a somewhat normal distribution and a balanced market.

The strongest groups year to date have been Electronics and Semiconductors, Computer Software, Computer Hardware, Leisure, Media and Construction. The weakest groups year to date have been Banks, Energy, Drugs, Insurance, Wholesale and Tobacco. Overall, this suggests despite recent market volatility, a focus by investors on Growth over Value groups.

In this week’s issue of Equity Leaders Weekly, we look at what the S&P 500 Index and Gold are telling us about market trends and sentiment.

S&P 500 Index (SPX.I) 

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