16 Charts for the NCAA Sweet 16: The Best Week for the S&P 500

Jeff Buchbinder:

Hello everyone, and welcome to the latest LPL Market Signals podcast. Jeff Buchbinder here, your host for this week with my friend and colleague, Adam Turnquist. Adam, how are you today? Thanks for joining.

Adam Turnquist:

Hey. Great to be back on Market Signals. Hope your bracket is holding up okay so far.

Jeff Buchbinder:

I got one good one and one not so good.

Adam Turnquist:

It's better than me. I got three bad ones. I think I'm near the bottom for all brackets, but I still have hope. So we'll see how North Carolina does through the journey.

Jeff Buchbinder:

Yeah, I'm riding North Carolina and Iowa State, so we'll see what happens. Boy, there's some good teams. UConn certainly impressed me. So a lot of basketball left to be played. That actually is the theme for us today because we're going to do, in honor of the Sweet 16, we're going to do 16 charts. Probably in a little more than 16 minutes, but we're going to do 16 charts. It is Monday, March 25, 2024, as we're recording this, and here is the agenda. As we always do, we'll just do a quick recap of what happened last week. A very good week for the S&P. We'll make that short and sweet before we get to the charts to give us time there. And then, and then a quick preview of the week ahead. At the end, it's just going to be PCE primarily. Although well, that's on the holiday on Friday.

Jeff Buchbinder:

So it's a little bit of an odd day to release the key inflation data, but that's what we're going to get. Powell speaking later in the week. Some bond auctions, Treasury auctions. But other than that, it's, it's kind of you know, all about Friday. So let's get into it. For first the recap. So S&P 500 went up 2.3% last week. A great week. I mean, we kind of limped to the finish a little bit on Friday, but it was actually the best week of the year. The NASDAQ did even better, up almost three on strength in the mega-cap techs. In fact, you see that strength in comm services, up almost five. The tech sector, up almost three. So that was really the strength of the market. You see the growth index strongly outpacing value.

Jeff Buchbinder:

Another big story last week other than the Fed, which we'll get to. We're going to get to a lot of topics. We'll get to them all pretty much. But another big story last week other than the Fed was the Nikkei and the Bank of Japan raising rates. And you know, much anticipated, but there was debate about whether it was going to come in March or April. That market just pretty much sailed right on through that. We still, you know, we had some yen weakness that maybe not too many expected. And you end up with a 5% rally in the Nikkei in yen terms. So that definitely stands out. Anything else high level that stands out to you here, Adam, about the equity market performance last week?

Adam Turnquist:

Nothing major. A lot of green on the screen, as you pointed out. And it's a growing list of record highs, so not just the S&P that's putting up new highs. You have other indices within the U.S. and those major averages breaking out, sectors breaking out to new highs, global equity markets also breaking out to new highs. You had some European indices hitting new highs as well. So it's pretty broad based and impressive considering we're just wrapping up the first quarter here this week.

Jeff Buchbinder:

Yeah, absolutely. Not just, you know, big tech and U.S. working. So turning to the bond market, and commodities and currencies. So the, you know, part of the reason why the stock market was up last week was certainly because it's comfortable with the Fed now, and we got generally a continuation of the same dovish messaging. You see that translated over into gains in the bond market, up 70 basis points on the Bloomberg Aggregate Bond Index. And similar gains for mortgages, Treasuries, and corporates. The commodity side, oil's made a little bit of a move here lately, so you had a little bit of gain in crude and that helped certainly the energy sector post solid gains, energies up nicely on Monday as we're recording this as well, but not so good for precious metals last week, which I guess makes sense in a risk on kind of a market, Adam. Anything you want to highlight here in terms of, you know, commodities, currencies, bonds?

Adam Turnquist:

For the commodity space, there's really two questions I'm getting from our advisors here at LPL one, what's going on with this gold rally last week looked like just some breathing room for gold that had an impressive rally as it broke out to new highs. So some of those overbought conditions are resetting. Technically, you can make the case gold moves higher in terms of how high you can use technical analysis to get an objective base kind of upside target, if you will, to kind of 2,250 to 2,350. And then the second question is on crude oil, where does it go from here? What levels are you watching? And the big one is going to be $83 for WTI crude, can you get through that level? Next major spot of resistance is $95. So we might be talking about a kind of a new trading range for WTI, if we can hold above that $83 level.

Jeff Buchbinder:

Yeah, that's a really interesting number because we're creeping up pretty close to that. So you know, continue to like the energy sector at LPL Research, if you do get a breakout of oil that, that will of course help. So thanks for that, Adam. Let's get into the charts. We're certainly, we're going to spend most of our time here 16 charts for the Sweet 16. So we'll start with the S&P 500. It looks pretty good to me, straight up and to the right.

Adam Turnquist:

Up and to the right. The hockey stick is still going strong here with the S&P 500. You can see how consistent this uptrend has been with buyers coming in right at support around that 20-day moving average. That's been a key level to the downside. Haven't had much downside volatility at all this year. I think in terms of the draw down that we've experienced, not even 2% yet this year, and it's getting a little bit overbought. I think that's an easy case to make when you look at just where prices relative to that 200-day moving average very stretched, and some of those overbought conditions popped up last week when we look at RSI or the relative strength index, that's a momentum oscillator that we like to use. And we had about a quarter of S&P 500 stocks hit overbought levels based on RSI last week and Friday

Adam Turnquist:

it backed off a little bit. We're at as of Friday about 14%, but that 25 to 30% range is near levels that we had either a pause or a pullback in the past, and you can see that throughout the last year. And I like to couple that indicator with the MACD indicator, and that's another momentum oscillator that we like to look at. And you can see on the bottom panel how many stocks in the S&P are registering either a buy or sell signal, so you have the red or the green, obviously red for sell signals, green for buy signals, and I've watched that level to see if you get overbought and you start to see the market roll over a little bit, those sell signals start to pop up. Haven't seen it yet creeping higher on both of those. Something I think investors should be watching as well.

Adam Turnquist:

If we start to see the market roll over a little bit, you're going to see it pop up in those MACD sell signals coming off overbought levels. Doesn't mean the rally's over, of course, there's good support underneath the market. I mentioned that 20-day moving average. You also have the rising 50-day moving average just over 5,000. And then I think technically, maybe worst-case scenario, you go back and retest those prior highs near 4,800. That'd be about a call it maybe a seven or 8% drawdown from current levels. Completely normal within the context of a bull market.

Jeff Buchbinder:

Yeah, it's nice when you have those support levels up over 5,000, which when we first got there, felt really high <laugh>, right? There's you know, it's a fairly long way down to get to that 4,800 that we were talking about as a high that was going to be tough to break through not long ago. And then on the bottom here, I think, you know, all the red and green. It certainly looks Christmasy, but it is Easter week, so know, folks, we get Good Friday off holiday coming up on Friday, but yet the PCE will be released on that day, nonetheless. So maybe we should put bunnies on here instead of or eggs instead of the Christmas colors. But let's go to mega caps. <Laugh>, let's go to mega caps, Adam, this is obviously getting a just a ton of attention. It's really been the biggest story of the year is the strength of this group. So what do the charts tell you about prospects or further gains?

Adam Turnquist:

Right now, the technical say the trend is higher, no signs of any cracks on the mega cap theme here. This is the Bloomberg MAG Seven equal weight index on top. And you can see we're continuously hitting new record highs, tracking above that uptrend. And then on the bottom panel, we compare it to the equal weight S&P 500. We use that ratio chart to really define where the trend is in relative strength and how well that, or the strength of that overall trend. And it's at record highs as well. So we got a breakout in the MAG Seven on absolute terms and on relative terms, momentum just turned bullish to that middle panel. You can see the MACD indicator flipping into a buy position. So it looks like more upside for this rally to go. Of course, when you look underneath the surface of the MAG Seven components, the returns have become a little bit more dispersed, and we're going to jump into that one next, unless you have more to add on this one, but

Jeff Buchbinder:

No, let's jump. Momentum begets momentum, as they say.

Adam Turnquist:

<Laugh>. Yeah, that's the big theme I think this year. And when you look at the dispersions, this is the MAG Seven index contributions to the S&P 500's total return this year. Far right, you can see they've added about 42% to the S&P 500. If you compare that to last year, it was just over 60%, so not as concentrated. The dispersion you can see here in terms of those contributions. Pretty notable though. You have NVIDIA alone adding over a quarter of the S&P 500's total return. And then four stocks have drove over 50% of the S&P's total return. That's NVIDIA, Microsoft, Amazon, and Meta. So still very concentrated, but it's not yesterday or yesteryears MAG Seven this year it's a bit different in terms of the makeup.

Jeff Buchbinder:

Yeah, we didn't put an earnings chart in here, but when we wrote about Q4 earnings in the Weekly Market Commentary on lpl.com, we made the point that these big techs were driving about nine points of overall S&P 500 earnings. And if you take them out, you were down about four. So it wasn't just the whole story, it was more than <laugh> the whole story. So the point here being fundamentals are really strong, maybe not for all seven names right at the moment. You know, certainly Apple's challenges were well documented last week with the antitrust action by the federal government. But you know, and Tesla's earnings are going down, not up, but outside of that, pretty strong fundamentals for these names. So could support further gains, those are of course growth names. So this kind of ties in to that theme.

Adam Turnquist:

No surprise here when you're talking about mega caps leading the way, this is the large cap Russell 1000 Growth Index and also breaking out to new highs. So that's been a consistent theme really since the start of the year. You can see when the Russell 1000 Growth Index breaking out through its 2021 highs, again in a very steep uptrend and holding above that 20-day moving average. So keep an eye on that. And if you step back and look at the longer-term trend, it coincides close to that rising 200-day moving average. And what happens often. Not saying that's the case here, we're seeing the evidence, but when you have a very steep uptrend, when that gets broke, you often revert back to that longer-term uptrend happens to be by the 200-day moving average. So that's kind of a worst-case scenario, if you will, for the growth space.

Adam Turnquist:

And then when you compare it to the Russell 1000 Value Index, that's that middle panel still in a rising price channel has slowed down a little bit as this rotation has helped support the value space, really just pulling back within that rising price channel. So for now, the technicals still lean toward growth over value, but we'll be watching that ratio chart closely to see if there's any type of breakdown or if value starts to play catch up with growth. I think you can make the case for that as a potential, just not enough technical evidence right now to make that call.

Jeff Buchbinder:

Yeah, you know, growth style expensive, had a great run. So we did take a little bit off. We're still slightly overweight growth in our asset allocation recommendations but felt like this was a good time to maybe you know, capture some of those gains. So this will be a really interesting thing to watch over the course of this year. Because we are seeing that broadening out. It's part of the reason why we made that move, and we expect it to continue. It's just probably going to be fits and starts because of the strong fundamentals of the growth style right now. So how about, how about this one, Adam? This is just like the Mag Seven story. A lot of people talking about, you know, the average stock and how equal weight has been so behind.

Adam Turnquist:

I think this is almost more important than the mega cap theme because we're seeing the rotation play out. This is the equal weight S&P 500 index. So every stock equal weighted, you eliminate that mega cap distortion and breaking out to new highs just earlier this month. I think that's a very good trend. When you think about this rotation taking place and some other cyclical sectors participating. The bottom panel compares that equal weight S&P 500 to the cap weighted S&P. And you can see we're right at this notable inflection point. This goes all the way back to support going back to the pandemic lows. So I think you could see a little bit of a bounce here and a catch up for the equal weight when both the relative equal weight and the absolute equal weight, are trending higher, that's a pretty good sign for the market rotating. I think we're getting very close to that point right now. And you can see it on that bottom panel with the ratio chart making a little bit of a higher low here off that support level.

Jeff Buchbinder:

We just hit the four-year anniversary of that pandemic low. So that's a long time ago. Feels even longer than it actually is <laugh>. But you know, anything that goes back that far, you might think that that is due to reverse. So that's certainly a one to watch really closely here at that key support level. You know, if you see more breadth, you're probably going to see things like financials, industrials, materials, some of those things work maybe even the more defensive sectors, but probably more industrial cyclicals, I would say at this point in time based on the macro environment. So let's kind of continuing on that breadth theme. So Adam, you just, you basically back tested breadth, right, to tell us where stocks go based on different breadth readings, right?

Adam Turnquist:

Right. And this chart helps to quantify the importance of market breadth. We talk about it, how important it is all the time, wanted to put some numbers behind it and a chart behind it to showcase just how important it is to market returns. And this is a scatter plot. I'll break it down for you quick. The Y axis is the six month forward returns for the S&P 500 based on market breadth. And we define market breadth by the percentage of S&P 500 stocks that are above their 200-day moving average. And right now, in the S&P 500, over three quarters of stocks are above their 200-day moving average. And you can see in that green shaded box, the forward six month returns during those scenarios, they're tightly wound around positive territory. You can see above that X axis. And when you look at actual returns here, you can see the average for the S&P going back to 1991 when three quarters of the S&P is above their 200-day, the average return is 5.5% and your higher 80% of the time. So some pretty good precedent here for current breath readings in the market.

Jeff Buchbinder:

Very good. All right, next up, small caps. So I just mentioned that we trimmed a little bit of large cap growth in our recommended tactical asset allocation. So the next question is, where do we go with that? And we put it in small.

Adam Turnquist:

Yeah, and I think that's really where some focus should be. We were underweight, we thought it was time to neutralize it, the technicals support that case, because we're running into the fulcrum point here of what we call a bullish pennant formation. You can see the lower highs and higher lows developing right into this point. You often get breakouts right around now, and I included Bollinger Bands on this chart, not to get too far into the technical weeds, but this is just a two standard deviation above and below a 20-day mean. So as volatility contracts, those Bollinger bands narrow, and as it expands, they obviously widen out. And I included this because on the bottom panel, that's the width of those Bollinger bands. You can see very, very narrow at multi-year lows. When John Bollinger Band created these, he found that when volatility is very low, it typically mean reverts and you get an expansion in volatility.

Adam Turnquist:

And that's really the point we're at right now and the point we're trying to make with this chart. We could see some volatility, whether that's higher or lower, remains to be determined. But keep an eye on this S&P 600 for a potential breakout to the upside. I think there is some potential here for small caps to play catch up to larger caps. Not suggesting large caps are going to take the leadership reins right now, but I think they could be due for a little bit of a rally as things broaden out for the broader market.

Jeff Buchbinder:

Yeah, certainly some of those industrial cyclicals that I mentioned before could be a target, you know, for money in motion, right? If more money moves away from tech and the Mag Seven. But certainly, small caps could as well, maybe even a little bit of international, but frankly, we'd rather be looking at small and some of those sectors at this point. Hey, there's a good segue. Cyclical sectors joining the record high party. So this is, I mentioned these before. These sectors are showing some life recently and it had been a while.

Adam Turnquist:

Yeah, they're breaking out to new highs. It's not catching a lot of attention because there's so much focus on the AI theme and the mega cap theme. But here you have the S&P 500 financial sector, industrials and the materials sector. That's a name no one's talking about. At least I haven't heard much about it. All hitting new highs last week. So when you think about the market or a bull market, you want cyclical leadership. This is a great example of what we're seeing here as things broaden out beyond those mega cap names and move into these more offensive cyclical sectors.

Jeff Buchbinder:

Absolutely. So I mentioned the big story last week was the Fed, we, you know, glossed over it so we could leave it for this chart discussion. So Adam, I mean, I think, you know, one of the reasons why the bond market has quieted down and the you know, stock markets continue to go higher, is because we're probably done with the process of aligning the markets and the Fed right, both looking for three cuts this year. I mean, you could certainly end up with less than that, probably not more, but you know, at this point the market seems comfortable with where the Fed is and vice versa.

Adam Turnquist:

Yeah, this has been a big story this year. If we go back to January, we were talking about six or seven rate cuts for 2024, despite the Fed just telling us, no, we're only penciling in three for this year. So the market really had to re-rate and recalibrate those rate cut expectations. You can see that magenta line moving higher and now we're in alignment with the Fed. I'm a bit surprised just by how this realignment process has played out with the S&P up 10%. I would've guessed this would've been more of a struggle for the market as we price those rate cuts out. But underpinning it has really been a stronger than expected U.S. economy, and I think that's really the big story here for the Fed and at rate cut expectations.

Jeff Buchbinder:

Yeah, certainly looks like three even though, you know, Bostic from the Fed is talking about fewer cuts, we'll have to wait and see. We need more data, but you know, for now markets are comfortable with the Fed. So next inflation. So, you know, you can't have a broad look at a bunch of charts without talking about inflation. It obviously ties to the Fed. So you know, I think we've talked a lot about services inflation and how that took a long time to get under control and it's, we've certainly made a lot of progress there. Whereas we were looking at goods deflation, right? The goods side of the equation we pretty much tackled you know, quite a bit ago.

Adam Turnquist:

Yeah. And last week was Chair Powell addressing the recent uptick in inflation. We had hotter than expected CPI reports back-to-back. He said that the, not necessarily completely ignoring them, but he didn't put a lot of weight on those reports. And I think that was another welcome sign from the market as well. So you can see here the path for inflation is clearly lower. It's a bit bumpier, I think, than most expect and maybe a little less steep. We'll get an update of course on Friday with that PCE report. That's going to be a major one, I think, for the market as we look ahead to the following week.

Jeff Buchbinder:

Yeah, that 2.8 number for core PCE is a really good number. So as long as we keep that trend going, we should be on track for cuts in the summer, hopefully June. We'll have to see. But just keep in mind the PCE is very different from the CPI in terms of how it treats housing. And you end up having you know, just a different mix pretty much entirely that you know, gives you two different readings. So don't get too caught up in the hot CPI. PCE a different animal. Of course, you know, inflation ties very closely into the treasury market. I mean, you have some treasury auctions this week that will be important to watch. We're getting a little bit of an uptick in yields today, Monday afternoon as we record this. What are the charts saying about where the 10-year's going, Adam?

Adam Turnquist:

Interesting to see today's price action bouncing right off that 200-day moving average. But I think you can make the case here for more of a consolidation as we look ahead for the rest of 2024. Last week we had another attempt to get through this key resistance level we've been talking about, call it 4.35 to 4.40. That goes back to the October 2022 highs. And then a key retracement level that we're watching, rejected there once again, moving a little bit lower, momentum signals have turned bearish on a shorter-term basis. You can see the MACD indicator flipping to a sell signal, although I don't think we're going to be taking out any new lows. Probably more of a sideways price action as we get closer to a potential rate cut. And I think that upside's probably going to be limited when you think about where inflation's going. We just talked about the trajectory there and what the Fed's planning to do with rate cuts this year. So the market's welcoming that news. Consolidation worked well for equities. If you think back through most of 2023, 10-year, more or less traded sideways. And hopefully we can get that kind of trend for this cycle.

Jeff Buchbinder:

Yep. LPL Research forecast still at 3.75 to 4.25, which implies some good gains for bonds from here, if we are right. Alright let's turn to the election. You can't do a chart rundown without talking about the election this year either, Adam. So what is this telling us?

Adam Turnquist:

The maybe the worst is over. It's hard to say that when we just put up a 10% rally already year to date. But you can see normal election years, the lows are set in Q1. Clearly, we're not in a normal election year. I think when you think about the probabilities going into Super Tuesday widely expected another President Biden former President Trump rematch, that's what we're going to get this fall. So not a lot of volatility around the candidates. And when we get out of this, you know, historically this is going back to 1952, get out of that first quarter, you see a pretty good run for equity markets. And average return for the S&P during election year is 7.3%. They are positive over 80% of the time. And when they're positive, I think it's somewhere around 12%. So generally a pretty good year. We look ahead to April, that's coming right around the corner. That's another good month for the S&P. I think the average return there is right around 1.5%. So some positive seasonality going into next month and really into the remainder of the year.

Jeff Buchbinder:

Yeah, we're getting closer to that "Sell in May go away" period, but still got another good seasonal month. I also think this election cycle's interesting because you know the candidates ahead of time and you've kind of seen the movie before and that could contribute to maybe less volatility over the next several months than you might get otherwise. And then as you get close to the election, you would expect some volatility regardless. You know, obviously this seasonal dip in October that you tend to get could happen again because by then, you know, obviously not only do you know the candidates, you know, the key issues, you know, all the platforms and you know, then you just sort of get that last wave of uncertainty typically creeping in. So, you know, could be some bumps ahead, but it just might not, you know, might not be for a while, right?

Jeff Buchbinder:

Kind of hard to say when you're up 10% and at 5,200 on the S&P. But <laugh>, we might have some pretty smooth sailing around the election here in the short term. So next is I'll do this one because this is more fundamentals. So valuations are high. Certainly, we're not in the minority thinking that. If you take the valuations and compare them to Treasury yields, right? That's how we create an equity risk premium. Effectively tells you if earnings if you're getting more earnings from stocks, then you're getting yield from bonds, right? Just take earnings over price, compare that to the yield on the Treasuries, and you get negative 0.3 right now. That is telling you that bonds are more attractively valued than stocks. I mean, most of you would probably think that anyway. Now the Weekly Market Commentary this week on lpl.com is about strategic asset allocation and how we basically took a big overweight to equities down to close to neutral and added some alternative investments.

Jeff Buchbinder:

And the biggest reason we did that is because equity valuations were high, certainly quite a bit higher than they were last year when we last updated our strategic asset allocation. Now that's very different than the tactical asset allocation when we talk about selling large growth, buying small caps. That is a tactical maneuver, right? Looking out a year or less. This, what I'm talking about here that you know, is more dependent on valuations, is a strategic asset allocation. So that's more like three to five years. Now, here is a chart we're getting close to the end, 14. This chart shows that valuations are good predictors of long-term returns. So now we're going even beyond three to five years and doing 10, the chart would basically be the same if you went five to seven years. But I just use 10 and what this tells you is that if you look at the P/E on any given day, the next 10 years returns for the S&P 500 are very likely predicted by that P/E.

Jeff Buchbinder:

So you get higher P/E, you get lower long-term returns, you get a lower P/E, you get higher long-term returns. That's why the dots were moved from the upper left to the lower right. So this really in a nutshell is why we thought it made sense at this point to take our overweight to equities down in our strategic asset allocation. So the weekly commentary has all the details around that, but really important point to keep those two processes distinct, right? Tactical, short term, strategic more long term. So valuations don't matter so much right now. So we use technicals, if you're just trying to predict where the market's going to go in the next three months, six months, nine months. But over the long-term valuations is pretty much all that matters. So that's that. Let's finish up these last couple here, I guess by going outside the U.S. So here, Japan, kind of a big newsmaker last week, right, with the BOJ. So this is in yen, I believe Adam. So what is the, how do you think about the chart, first of all, and then how do you think about the relationship between the yen and the Japanese stock market?

Adam Turnquist:

Yeah, so this is the MSCI Japan index priced in yen. Technicals here look like we just got very overbought. We corrected again, back to that popular 20-day moving average, bounced right off that level and looks like we're going to continue to move higher, although not in a straight line. We've had these pullbacks before, but there seems to be a lot of capital moving into Japan. And it's not just the policymakers or Bank of Japan buying ETFs. I think they scrapped that last week when they announced the end of their yield curve control program. And also raised interest rates for the first time in 17 years, albeit it was a very minor move out of negative territory. But when you look at equities, they're outperforming, you can see that on the bottom panel versus the all country world index. This includes the U.S. by the way.

Adam Turnquist:

So it's a pretty tough competition, if you will. And the trend here is higher, it's outperforming within international developed or EAFE as well. Middle panel just showcases how overbought conditions were coming into last week's Bank of Japan meeting. Very overbought. We've subsequently reset from those overbought levels and the reset happened notably right near the midline. That's typically what you see in a strong bull market. So good to see that indicator hold that 50 line. So for Japan, I know we're more neutral on international developed, but Jeff, you've been talking about Japan for probably a year now, and on the fundamentals, technicals look well. And then in terms of the dollar/yen, it did come right to a major area of overhead resistance near 152. Now that's a very important technical level, not only just because it represents resistance, but that was also a spot where the Bank of Japan intervened to help support the yen as it weakened last week. We did get that playbook again with some comments from BOJ officials, I think it was over the weekend that helped support a little bit of a bid into the yen, but still keep an eye on that 152 level. If you break out there, that suggests we're going to see a weaker yen, which for an export driven economy may not be the worst-case scenario. It certainly helped this rally for the MSCI Japan Index.

Jeff Buchbinder:

Yeah, I've been involved in the financial markets for about 25 years. I've never talked about the yen so much in my life. I mean, I thought maybe in the, like the late eighties it was interesting what was going on in Japan when they were buying up U.S. real estate. But since then it really you know, not many people were paying close attention to Japan over the last 25 years or so. But boy, in this last year it's really made a huge move and a lot has changed fundamentally and technically, so still like Japan quite a bit. Just not as excited about Europe on a tactical basis. So alright, we'll finish up our Sweet 16 with, with China. So we'll talk about a controversial market. Maybe the yen is controversial because you've got some high conviction bulls and bears, I think there. What about China? I mean has the technical progress been enough to make you comfortable maybe considering a buy here?

Adam Turnquist:

Going with the Sweet 16 theme this would be the bracket buster because it's the underdog I think on the technicals. And you can see this is the Shanghai Stock Exchange Index, getting all the way down to its pandemic lows, just recently going into earlier this year, bouncing off those lows with a sizable relief rally here, getting through some pretty important resistance levels and reversing a downtrend right at the 200-day moving average now. So watching that level carefully, if we can get through that 200-day moving average, it looks like this rally could continue more toward those prior highs near 3,400. So more of a trading opportunity, I think in Japan than a long-term investment. It's been a perennial underperformer versus most global markets, especially the U.S. for, as for a number of years we'll call it. So not making a call there for China to start leading the market higher, but on a trading opportunity, I think you could potentially move the, you know, the Shanghai could get closer to that 3,400-resistance level if it can hold above the 200-day moving average here.

Jeff Buchbinder:

Yeah, still tactically LPL Research recommends underweighting emerging markets, which is very China heavy. But yeah, it's a trade for you active folks out there looking at, you know, one to three month kind of time horizons. This is a real interesting one. The People's Bank of China supported the yuan over the weekend, and you know, maybe the news flow is getting a little bit less bad, I'll say. I'm not going to say it's good, but it's less bad. And you know, you're seeing folks finally, you know, enough buyers here that like the valuations and maybe see stability near term on the geopolitical front, although we did get the headline over the weekend that China's going to restrict use of U.S. chips in their, you know, government servers, I guess. So yeah, that's weighing a little bit on the chip sector today, so you'll continue to get these headlines.

Jeff Buchbinder:

But you know, these markets look pretty cheap and there's certainly a lot of smart folks with big dollars that have been getting more interested here lately. So, trading idea, most of this, what we shared today is more of a tactical or strategic idea. <Laugh>, this is a short-term trading idea. So thanks for that, Adam. We got through our 16, let's do a quick preview. I mean, we kind of already did our preview of the week ahead. We talked about the core PCE. I mean, that's really all that matters. You see that 2.8% year over year that we had on the prior chart where we showed the PCE, that is consensus. So the market may be taking some of the bad news from the CPI and incorporating it into the PCE in a different mix, but still incorporating it and you end up with, you know, not seeing, at least based on consensus, any improvement there.

Adam Turnquist:

And we'll have a long weekend to digest whatever the number is. So, those reactions that you get on these numbers aren't going to be there at least not until Monday morning. So maybe that will help if we get a little hotter than expected print on Friday.

Jeff Buchbinder:

Yeah, that's right. Not a fan of the holiday releases, but it does happen. It's happened with the jobs report on occasion as well. So yeah, that's what matters. The Treasury auctions this week are going to matter, so we'll be watching those, listening to our chief fixed income strategist, Lawrence Gillum, for how those go. And then Powell speaks on Friday too, so maybe we can't take the whole day off. We have to kind of keep one eye on the markets. So we'll do that. So with that, we'll wrap. Thanks so much, Adam. You can take a breath. Got through all 16. I sprinkled in a couple of my own in there, but mostly all was used. So thanks for going through all that. Hopefully you found those listening to be of interest or of help. So with that we'll wrap. Thanks everybody for listening to another edition of LPL Market Signals. We will be back with you next week. See you then. Take care.