By Saqib Iqbal Ahmed and Lewis Krauskopf

NEW YORK (Reuters) – U.S. stock bulls are cheering on a series of market signals pointing to a bullish year for Wall Street as stocks rallied despite fears that Federal Reserve monetary tightening could sink the economy in the recession and making impressive profits.

These include positive stock performance in January, a “golden cross” chart pattern on the S&P 500, and more stocks hitting new highs rather than new lows.

Such signals are far from the only indicators used by market participants to make investment decisions and they are not infallible. A dim outlook for heavyweights like Amazon and Microsoft and soaring jobs numbers raising expectations for the Fed’s dovish stance brought another note of uncertainty to markets on Friday, even as the S&P 500 lagged. up 7.7% since the start of the year.

However, the steady improvement in momentum and sentiment indicators over the past few weeks has reinforced some investors’ view that asset prices may be heading for a more favorable streak following the S&P’s 19.4% plunge. 500 last year, its biggest annual percentage decline since 2008 meant.

“We believe a healthy picture is being painted here,” said Ryan Detrick, chief market strategist at Carson Group, citing signals such as January’s gains and the wide range of sectors participating in the rally. .

JANUARY JUMP

The S&P 500 rose 6.2% in January, partly on hopes that the Fed will be able to contain rising inflation without causing major damage to the economy.

If the S&P 500 is up in January, the market is up 83% of the time in the following period from February to December, with an average 11-month gain of more than 11%, according to an analysis of data going back to the First World War. by CFRA Research.

However, a positive January after a bad year was followed by a 23.1% gain from February to December with a 92% success rate.

Despite a recent rally that may have made stocks relatively expensive, “the track record suggests we may have upside potential,” said Sam Stovall, chief investment strategist at CFRA Research.

GOLD CROSS

Meanwhile, chart watchers noted that the S&P 500’s 50-day moving average crossed above its 200-day moving average on Thursday, a pattern known as the golden cross.

Since 1950, the S&P 500 has generated an average 12-month return of 10.5% after forming a golden cross, while the average annual total return since 1950 has been 9.1%, according to strategist Adam Turnquist. chief technical officer at LPL Research.

However, when a golden cross appears when the 200-day moving average falls – as it is now – the average 12-month return for the S&P 500 climbs to 16.8%.

“Gold’s recent crossover adds to growing technical evidence of a trend reversal in the S&P 500 and further increases the likelihood that the October bear market bottom will be reached,” Turnquist said in a post.

INTERIOR UPGRADE

Willie Delwiche, investment strategist at All Star Charts, said all five indicators on his bull market checklist were met in January, including upside volume and risk appetite metrics, which don’t have not happened once in 2022.

One such indicator showed more stocks on the New York Stock Exchange and Nasdaq hitting new 52-week highs than lows – a sign that the rally is being led by a wide range of stocks rather than a group of heavyweights. It happened as often in January as it did in all of 2022, Delwiche said.

However, some investors think the shares may have overshot.

Friday’s data, which showed U.S. job growth accelerated sharply in January, reignited inflation concerns that have plagued stocks over the past year and sparked bets on a more hawkish Fed.

“The January jobs report was clearly strong and should be the start of a series of data points showing stronger activity and inflation in early 2023,” Citi analysts wrote. “We expect this emerging trend to push back overly dovish market prices.”

(Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; Editing by Ira Iosebashvili and Cynthia Osterman)

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