MARKET UPDATE MARCH 2023

We are still in the middle of this challenging bear market. As of Friday, March 10th, the S&P 500 is down 18.7%, the Russell 2000 is 27.1% off its previous peak and the Nasdaq is 29.5% below its previous peak.

After a nice move higher in January, prices dropped in February and early March. All three indices still remain above the October lows, but the recent trend is negative.

Let’s look at another view of the S&P this year to see what the technical analysts are seeing. Charts like the one below show what are called price support (lower line) and price resistance (upper line) levels. You can see that the S&P broke through the top line on the graph in January but the reversal in February has brought us back below the price resistance line.

We have been stuck in a sideways market for the last ten months. The S&P 500 has bounced between down 10% and down 25%. Currently, prices are just below the midpoint of this range. Markets like this are the toughest to read. Until we break out of this range, it will remain difficult to determine any kind of long-term price movement.

Throughout 2022, we have been comparing this bear market with the bear market of the 1970’s. The graphs line up well as you can see below, and the seventies were the last period where we experienced high rates of inflation. The 1970’s market was only halfway through its decline at this point and continued falling for another year. It bottomed out with a price drop of 45%. This year’s market is still following the slow and steady decline we observed in the early 1970’s.

When we compare the current bear market to the full 1970s bear market the picture is not encouraging. We would like to see the orange line move higher and move above the 1973 trend line.

The market continues to bounce around based on inflation data, interest rates and the policies of the Federal Reserve. The most recent indication is that the Fed is expected to remain aggressive in its fight to bring inflation down. It is likely that the Fed will need to tip the economy into a recession to snuff out inflation. Historically, bear markets don’t reach a bottom until the middle or end of recessions.

We remain cautious as a result and our model and funds remain in cash at the moment. We are pleased to be earning 4.5% on our cash investments as we wait for things to sort themselves out.

The reality is that no one knows if the worst is over or not for the stock market. Because of the uncertainty, it is important to follow a disciplined approach to stock market investing. Our approach to investing relies only on quantitative measures of actual price trends. We make no predictions about which way the market will head in the future. We simple react to what the market is telling us and can make money if the market goes down or if the market goes up. Stay disciplined, my friends.

Happy Investing,

Phil

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