It’s too early to say risk-on is back, but the rebound in the stock market is certainly looking a bit more muscular after today’s rally that lifted the S&P 500 Index to its highest close in nearly two months.
Is the broad market bounce of late showing signs of spilling over to the industry level? A handful of clues appear to be hinting at “yes,” although clear upside signals are still rare. One of the potentially early runners is iShares Clean Energy (ICLN), which is now posting the highest Signal score via industries for our trending analytics: +5, which is the highest bullish reading. (For details on the trend-scoring methodology below, see this summary.)
ICLN has been trending lower since early 2021, but the tide may be starting to shift. The +5 Signal score is certainly encouraging. But in the current environment a similar shift may be needed in the broad equity market trend to seal the deal. But not yet — the trend is far less advanced for broad market beta.
Consider SPDR S&P 500 (SPY). Although the upside bias is strengthening, it’s still early to call this a solid recovery. Deciding if there’s something more than a bear-market rally will take more time.
Meanwhile, several other industry funds are right behind ICLN and flirting with recovery signals. SPDR Health Care Services (XHS) is starting to look perky, for instance — the ETF is now posting a +4 Trend score, second only to ICLN for our industry rankings.
A key macro factor will likely be determine if there’s more upside, namely: the evolution of the Federal Reserve’s plans for additional rate hikes following Wednesday’s 75-basis-point rate hike. With mounting evidence that economic growth is slowing and recession risk is rising, the key question is: Will the Fed will put the brakes on further rate hikes?
Fed funds futures are still pricing in a high odds of another increase at the next FOMC meeting on Sep. 21. But some corners of the equity market are starting to consider the possibility that the Fed may go easy the next time around. Then again, much depends on how inflation data stacks up between now and the next Fed meeting.
There are still a lot of speculative factors in play, which raises the question for punters: Is it still too early to start making bets that the stock market’s correction has bottomed? ■