Last week, the S&P 500 recorded a gain of +0.3%, characterized by slight losses as the index moved below a trendline and corrected over several days. On Wednesday, the S&P 500 was able to break out of the downtrend with a strong rally.
Our last position, which we placed, has been active since February 16th. The position is currently up by 4.2%. You can find free access to our signals below.
Since early January, the S&P 500 has been in a trend channel that defines this very strong rally. A larger correction of 5-10% has been overdue for weeks and will only occur when the trend channel is broken downward. Last week, the index tested the upper side of the trend channel, respected the trendline, and bounced off it.
The macro environment remains negative, with various signals from the Risk Level Indicator (RLI) increasingly confirming this. My baseline scenario anticipates rising stock prices until the recession in the USA or a credit event in the spring of 2024. Particularly noteworthy is the Federal Reserve’s Bank Term Funding Program (BTFP), which was launched after last year’s banking crisis to assist banks facing difficulties due to high interest rates. This program has expired, and banks now must gradually repay the loans to the Fed over a year. The RLI will detect emerging issues in a timely manner and adjust the risk level accordingly. At the moment, a somewhat defensive allocation in stocks is recommended.
Additionally, we are experiencing a liquidity bottleneck in March. There are four liquidity bottlenecks in a year, each occurring in the middle of the last month of each quarter. Mid-March and mid-September witness the most severe squeezes, while mid-June and mid-December are relatively milder. These liquidity squeezes can lead to increased stress in the financial system, which is why credit events like Lehman Brothers or the banking crisis of 2023 tend to occur during these periods.
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