Game of Trades: No SP500 Bottom Has Occurred Without This Signal
The stock market had a solid run over the past few weeks. While October is historically a poor month for market performance, stocks beat the average this time. The Dow rallied 14 percent.
That was also enough to break the recent downtrend in stocks. Momentum trends are starting to show as bullish once again. While the trend has been broken, it may not fully clear, especially with interesting rates continuing to rise.
That’s a healthy sign. Another healthy sign is that credit spreads are coming off their elevated levels from earlier in the year. It’s a sign of trouble in the credit markets, when tend to bleed out to all other markets.
Credit spreads also have trouble when unemployment is rising. That’s because when more people lose their jobs, there’s less spending. Across the entire economy, that can cause trouble for many marginal businesses.
That’s why prior credit issues have popped up in the market in 2000, and 2008, and even early 2020.
With unemployment still low, it’s unlikely we’ll see credit market issues anytime soon. While scary, the credit market locking up tends to result in looser monetary policies. So it’s also another sign that interest rates have more room to rise.
That’s a further tailwind to the current market, suggesting that stocks may have put in a short-term bottom, even if the stock market has tried to front-run this week’s Fed meeting.