The stock market has gotten off to a strong start in 2023, a welcome development following the dismal showing the previous year. The S&P 500 Index, a broader market gauge, fell about 19.5% in 2022 but has gained over 6% since then.
What Happened: The S&P 500 Index is approaching its two previous highs of 4,100 level, raising the possibility of it breaking above the level, market strategist Ed Yardeni, said in Yardeni Research’s market call update.
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He noted that this level has been the target of Yardeni Research market consultant Joe Feshbach’s call at the beginning of the rally. “He sees no reason to alter it,” he added.
Sentiment numbers do not support a big breakout above these levels, Feshbach said. While a break above 4,100 could lead to another 2% or so, the right strategy is to start paring back positions bought earlier in preparations for the market’s next setback, he added.
While stating that the downside is hard to predict, Feshbach said, “I just want to start paring back, as this breakout is going to fool most people.”
Yardeni noted that the S&P 500 has broken above its 200-day moving average recently on its fifth attempt since early 2022. “It might fail like the previous four attempts if Fed Chair [Jerome] Powell’s presser on Wednesday is much more hawkish (again) than widely expected, he added.
“Nevertheless, we still think that the bear market ended on October 12 of last year and that the S&P 500 will rise above last year's close this year.”
Why It’s Important: The equity market is entering a key week amid its recent recovery. A slew of tech earnings, including Apple Inc. AAPL and Alphabet Inc. GOOGL GOOG, is expected to drop in, creating volatility in the market.
Some of these have heavy weightings in the S&P 500 Index. Incidentally, Apple has the top weighting of 6.33% in the index and Alphabet is ranked fourth with a weighting of 1.71%.
Over and above these, the Federal Reserve is meeting this week amid expectations that it will slow down the pace of its rate hikes to 25 basis points. Wharton professor Jeremy Siegel said the messaging from the Fed is also important along with the rate move.
Price Action: The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the S&P 500 Index, ended Friday’s session up 0.23%, at $405.68, according to Benzinga Pro data.
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