By Saqib Iqbal Ahmed
NEW YORK – As US stocks test the top of a range that has held for months, two widely used analytical styles appear to be painting conflicting scenarios for where they might go next.
Technical indicators such as equity price movement largely show stocks are poised to continue a rally that has seen the S&P 500 climb 8 percent year-to-date, analysts who track them said. Many investors who look to fundamentals, on the other hand, see choppy waters ahead when they study measures like corporate earnings and valuations.
Few market participants lean entirely on one style and neither approach is foolproof.
Investors say the recent divergence, however, illustrates the wide range of outcomes faced by markets this year as they stare down a spate of thorny issues, from a possible recession to whether stocks have factored an expected slide in corporate earnings.
“This is the first year in a long time that technicians are sort of diverging from the fundamental or macro analysts,” said Mark Newton, global head of technical strategy at Fundstrat Global Advisors.
“Everybody is very, very negative,” but from a technical perspective, the market looks good, he said.
The S&P 500 has traded in a 9.7 percentage point range year-to-date, its narrowest range for comparable periods since 2017. With the index now at around 4,133 and about 16 percent above its October lows, technicians see evidence it can extend its gains.
“This market is probably going to be stronger than a lot of people think,” said Craig Johnson, chief market technician at Piper Sandler.
Johnson, who has a year-end S&P 500 target of 4,625, is encouraged by the reversals in downtrends for many US stock indexes. In another bullish sign, the 50-day moving averages for several indexes are trading above their 200-day averages, signaling strength for the intermediate-term, he said.
Many technicians also say the market’s year-to-date resilience bodes well for stocks. The S&P 500 has traded higher 83 percent of the time for the full year, returning an average 13.73 percent, when it hasn’t dropped below the preceding year’s December low in the first quarter, a Piper Sandler analysis showed. – Reuters
