Chart Advisor: Rebound Continues

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Tuesday, 11th January, 2022

1/Stocks bounce back as Powell testifies  

2/ Worldwide investor activity picks up     

3/ Ford’s strong, six-month trend  

4/ The bottom line

1/ Stocks Bounce Back as Powell Testifies 

Federal Reserve Chair, Jerome Powell, testified before U.S. Congress that rate hikes would be needed in 2022 in order to fight inflation. Surprisingly, investors responded positively to this and markets continued yesterday’s rebound adding more gains. 

Of the four major indexes, the broader large-cap indexes outpaced the other two as shown in the chart below. State Street’s S&P 500 Index ETF (SPY) and Invesco’s Nasdaq 100 Index ETF (QQQ) both closed higher by 1% or more. By contrast, iShares’ Russell 2000 Index ETF (IWM) and State Street’s Dow Jones Industrial Average ETF (DIA) closed less than 1% higher.  

The broader rebound for stocks is meaningful in the context of Powell’s comments. When investors hear news of rate hikes, they normally sell shares and the market shows downward price trends thereafter. But on those occasions where they hear news of rate hikes but also buy shares, it usually comes because of changed mindset. When investors accept that these hikes are necessary and beneficial for the economy, then they tend to buy more shares both on the day of the news and over the months that follow.  So today’s rebound activity could be taken as a bullish indicator.

Source: TradingView

2/ Worldwide Investor Activity Picks Up  

In addition to U.S. investors showing confidence in the Fed’s position, global investors are stepping up to establish new positions. The following chart shows how things are shaping up by comparing iShares’ MSCI World ETF (URTH) and MSCI Emerging Markets ETF (EEM) in the left panel. URTH includes a mainstream mix of large investments from all economies. EEM focuses on emerging markets where opportunities are more pronounced. This is a good way to compare how much risk global investors are seeking.

EEM was on a downward trend in 2021, however today it rebounded strongly and established the start of a new upward trend. It finished up 2.3% compared to the 1% increase for URTH. This demonstrates that money is beginning to flow not just to the world’s largest investments, but also to stocks in countries with higher risk and opportunity. This trend wasn’t evident at all in 2021. 

This may have also been reflected in the comparison of General Motors (GM) and Toyota Motor (TM) as shown in the right panel. During the past week, while GM has been pulling back, TM has moved decidedly higher. 

Source: TradingView

3/ Ford’s Strong, Six-Month Trend         

Car manufacturers have certainly captured investor attention, but perhaps none quite so much as Ford Motor Company (F). In the chart below the stock shows how it has outpaced Tesla (TSLA) over the past six months.

This performance has a lot to do with how low the stock price for Ford fell, but also how much it has rebounded in recent weeks. As investors begin to anticipate the end of supply chain interruptions, it may be they are looking at Ford’s future in anticipation. 

Source: TradingView

4/ The Bottom Line 

Stocks rebounded today even though Fed Chair Powell reiterated the need for higher interest rates. The moves weren’t limited to U.S. securities, as global indexes also jumped today. 

Originally posted on 11th January, 2022

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