Market Musings 280123: Breakouts multiply

Stock market breakouts multiply

Summary

• Recession fears calm, for now

• US earnings season is not as awful as one might have expected

• S&P 500 finally breaks out of 2022 downtrend

• Leading sectors: Semiconductors, Luxury Goods

• Watch the CAC-40, FTSE 100 for evidence of new all-time highs

• Uranium prices pick up momentum

Podcast: The ChatGPT AI revolution

• What is ChatGPT?

• What is used for?

• How does it work?

• Does it have a promising future?

• What is its potential impact on the quoted Tech sector?

Recession fears calm, for now

The twin motors of better-than-expected economic momentum and declining inflation rates in the US and Europe have underpinned the continued global stock market recovery in January, aided and abetted by Chinese reopening.

Global stocks continue to move higher

Source: tradingview.com

Earnings season not as bad as feared

Q4 earnings season in the US and Europe is a little bumpy, with some shockingly poor results from household names such as Intel. But in general, earnings for the end of last year have come in better than expected, with a number of strong results in various sectors.

S&P 500 finally follows World ex US stock indices

While European and emerging market stocks have led over the year to date, the closely-watched chart of the S&P 500 finally broke out of a key downtrend resistance line. This suggests more upside potential in the days ahead for US stocks, with even the Nasdaq starting to show signs of life.

S&P 500 equal-weight (blue) and market-cap (green) indices break out of downtrend

Source: tradingview.com

Sectors to watch: Semiconductors

Intel may have had a shocker on the back of weak demand for PCs - understandable after the rush to buy new laptops in response to lockdowns and the need to work from home . But semiconductor leadership can be found in the likes of TSMC, ASML and ST Micro, all of whom are demonstrating strong fundamental trends.

Semiconductors lead Tech out of downtrend

Source: tradingview.com

This comes in spite of evidence that smartphone demand growth is slowing sharply - the smartphone replacement cycle has lengthened from an average of 2 years to 3 years, impacting both Samsung and Apple. Those companies who are key components supplies to these smartphone makers could be equally at risk of slowdown in demand.

Sectors to watch: Luxury Goods

Luxury Goods are back in fashion as the number of Chinese tourists is expected to ramp up quickly now that they are allowed to travel once again. Moreover, results from industry bellwether LVMH were once again impressive.

Burberry (blue) the leader in a recovering Luxury Goods sector (green)

Source: tradingview.com

UK Stocks: revenge of the Mid-/Small-caps

While the FTSE 100 large-cap index has been one of the best-performing large-cap country indices around the world since the start of 2022, it may now be time to switch attention back to UK mid- and small-cap stocks. This, in spite of the looming domestic recession that the UK economy seems destined to suffer.

Since the recent stock market lows touched in early October 2022, note how small-caps (represented by the Aberforth Smaller Companies trust) and the FTSE Mid 250 have outperformed the FTSE 100 to the upside, +30% and +22% respectively over this period versus +14% for the FTSE 100..

UK mid- and small-caps in the lead since October 2022

Source: tradingview.com

Remember that over the long-term, both UK mid- and small-cap stocks have handily outstripped large-caps even after accounting for dividends (reinvested)...

Since 2012, UK small- and mid-cap stocks have outperformed the FTSE 100 by far

Source: tradingview.com

Will the FTSE and French CAC-40 break to new all-time highs?

These are the two stock market indices I am watching for confirmation of a new bull market - if the French CAC-40 and UK FTSE 100 indices can both move beyond resistance to establish new all-time highs, this would be a strong signal of the health of this possible new bull market.

Watch for new all-time highs in the CAC-40 and FTSE 100

Source: tradingview.com

Keep a close eye on…

I apologise, but I couldn’t help mentioning yet another time one of my favourite commodities - Uranium.The momentum is there, both in fundamental and technical terms.

Uranium breaking out, return to new highs ahead?

Source: tradingview.com

Have a great week,

Edmund