Last week, the S&P 500 experienced a slight decline of -0.04%, characterized by a sell-off on Tuesday and a rally on Thursday. Over the past two weeks, the S&P 500 has been moving within a tightening trend channel. Although the release of US labor market data briefly caused the index to break out of this wedge, it was ultimately an unsuccessful attempt. An upward or downward breakout in the coming days seems inevitable.
On Friday, February 16th, our indicators signaled, triggering a new trading signal. The position is currently up by 1.9%.
The seasonal patterns for the S&P 500 suggest a potentially weak performance in March, possibly signaling the start of an impending correction over the next few months. Investors should therefore remain vigilant in the coming months, diversifying and securing their portfolios accordingly to prepare for potential market movements.
The macro environment remains negative, with various signals from the Risk Level Indicator (RLI) increasingly confirming this. My base case scenario is for rising prices until a recession in the USA or a credit event (Credit Crunch) in the spring of 2024. Especially noteworthy is the BTFP (Bank Term Funding Program) by the FED, which was launched after the banking crisis last year to support banks that have been struggling due to high interest rates. This program is set to expire in March. The RLI will identify emerging problems in a timely manner and adjust the risk level accordingly. At the moment, a somewhat defensive allocation to stocks is advised.
Furthermore, we are approaching the liquidity squeeze in mid-March. There are four liquidity squeezes in a year, always in the middle of the last month of the quarter. Mid-March and mid-September are the strongest squeezes, while mid-June and mid-December are more moderate. These liquidity squeezes can lead to increased stress in the financial system and are the reason why credit events such as Lehman Brothers or the banking crisis in 2023 occur during these periods.
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