S&P500 OTW

1 Apr 2023

Hello traders, here is some analysis based on what I think is happening. Please note that this might take a couple of days or weeks to come to fruition, but we are already on the way (OTW).

These are the asset classes that are under our S&P500 by percentage:

Information Technology: 27.5%
Health Care: 14.3%
Consumer Discretionary: 12.8%
Communication Services: 10.9%
Financials: 9.4%
Industrials: 8.1%
Consumer Staples: 6.4%
Energy: 2.9%
Utilities: 2.9%
Real Estate: 2.7%
Materials: 2.1%

From the past couple of days, we have seen banking turmoil that had a big impact on some banks like SVB and FRC, among others. I have had many people telling me that the market is coping well as the bailout was announced, but I don't see it well-dwelled in our economy yet. Today, NASDAQ had the best QT scene in 2020, which is a good sign, but we all know that these compressed assets are a lagging indicator for the economy.

Long story short, yield curves are inverted, and average earnings per share (EPS) are negative. This is not enough, as we saw the first-ever deal for natural gas in Chinese currency, which means it could put some pressure on the dollar.

A slower economy could further lead to a slowdown of our financial markets as banks will be tightening lending conditions, as they would need more money to meet the needs of depositors in case of a surge in withdrawals. Also, the fact that we are already 23.48% down from the first rate hike does not bode well. "This time it's different," and we have seen in the past that during the Great Recession (December 2007 - June 2009), the S&P 500 index fell by approximately 56%, while during the COVID-19 pandemic-induced recession (February 2020 - April 2020), the S&P 500 index fell by approximately 34%. The charting could be a little off, but the numbers don't lie.

Given that a recession and an economic slowdown are directly correlated with each other, we can expect to see the S&P 500 taking a hit in the next few days or weeks. During recession times, these asset classes have performed on average as follows:

Information Technology: -43%
Health Care: -20%
Consumer Discretionary: -33%
Communication Services: -36%
Financials: -78%
Industrials: -52%
Consumer Staples: -14%

So, I will be looking at this analysis deeply to figure out more. Some trend lines from 2020 have just been broken in my chart, and I have marked a possible trend pattern. This will be clearer next week as we enter a new QT. I do not trade on days like this, but I sit back and watch price play its role. Feel free to comment below with your ideas and thoughts on this analysis or anything you want to add.

3 Apr 2023

Catatan

SSPX total return for March-to-date was 3.67%, but the breakdown was more
» revealing. The 3.67% gain would have been 4.81% ex-Financials' -9.55% decline (it cost the index 1.13%) and it would have been 0.70% ex-Information Technology's 10.93% gain (it added 2.97% to the index, with Microsoft and Apple adding 1.72%, negating the Financial decline). For the Q1 YTD period, the total return was 7.50%, and without Information Technology's 21.82% YTD gain (it added 5.34%, with Apple and Microsoft
adding 2.71%), it would have been 2.71%.