Did the market just pivot?
If it did, you could be forgiven for missing it, as major market indexes have made significant moves up and down this year.
And until recently the market didn’t show a consistent bear or bull market trend.
In fact, the S&P 500 Index was around the same level on March 10 as it was on the first trading day of the year.
And for good reason.
Last year, several factors drove the market down – and these have persisted into 2023, keeping asset prices moving sideways.
These factors are…
- Russia’s war on Ukraine. The first Russian tanks rolled into Ukraine on February 22, 2022. Today the conflict seems no closer to a resolution than it did in March of last year.
- Persistently high inflation. Prices began to rise to uncomfortable – and then alarming – levels in late 2021, with inflation peaking last June. It’s been coming down slowly since then, but at 5% year over year, it remains well above the Federal Reserve’s 2% target.
- Financial conditions. Despite the Fed’s rapid interest rate hiking cycle – the fastest in recent history – financial conditions like risk-taking and credit availability just didn’t tighten the way the Fed had hoped.
These circumstances hadn’t changed much by early March – they weighed on the market and prevented it from resuming its inevitable upward march…
Until they didn’t.
It’s starting to look like March 10 (more on the significance of this date to come) might have marked the beginning of a solid upward trend – one that should continue at least through Memorial Day, which falls on Monday, May 29, this year.
And we have the mini banking crisis to thank for it.
A Possible Pivot
Since March 10 – the day Silicon Valley Bank failed and triggered a mini banking crisis that took a few other regional banks down – the S&P 500 is up more than 7%.
Why would a banking crisis make investors suddenly bullish?
Because those failures suddenly brought about the tighter financial conditions the Fed had been trying and failing to create for a year.
You can see the dramatic change in financial conditions in the Bloomberg index below.
As a result, it looks like the Fed can bring its interest rate hiking cycle to an end by May. And it might even begin to cut rates later this year, perhaps as soon as July or September.
In fact, that’s exactly what the federal funds rate futures market is now predicting.
Time to Invest
What does that mean for investors?
It means that right now is the time to be invested in stocks. That’s because 78% of the stock market’s best days happen near the end of a bear market or during the first two months of a new bull market, according to research by Hartford Funds.
Those best days are absolutely critical to your long-term returns. If you missed the market’s 10 best days over the last three decades, your returns would have been cut in half.
And time may be running out to catch the best part of this upward market swing…
Because Memorial Day is just around the corner.
More than the unofficial start of summer, historically this holiday marks the beginning of summer doldrums in the stock market.
Trading slows after Memorial Day weekend and volume becomes anemic and uninspired, according to the Stock Trader’s Almanac.
As a result of fewer buyers, it becomes more difficult to sell stocks at good prices. And summer rallies – if they happen at all – tend to be short-lived and are often followed by pullbacks.
Bottom line: Get into the market now and take advantage of the current rally.
Because it may not last.