OVERVIEW
The U.S. stock market rallied last week, with all three major indices in the green. The S&P 500 rose 1.84%, the Dow gained 0.34%, and the Nasdaq shot higher by 3.09%. Growth stocks led the way, rising 3.51%, whereas value stocks dropped 0.3% and small-cap stocks fell 0.06%.
Foreign stock markets were mixed. While developed country stocks rose 0.87%, emerging markets fell 0.58%.
Bonds had a good week amid falling interest rates. The benchmark 10-year Treasury rate dropped to 3.94% from 4.05% the week before. Intermediate-term Treasury prices gained about 0.65% as a result. Investment-grade corporate bonds also had a good week, rising 1.26%.
Real estate had a decent week, gaining about 0.5%. Commodities, on the other hand, fell about 0.68% broadly. This was led by a 1.46% drop in oil and a 2.98% fall in corn prices. Gold, though, rose about 1.05%. And finally, the U.S. dollar managed a small gain of about 0.15% for the week.
KEY CONSIDERATIONS
Triumvirate – In 60 BCE, three of the most powerful men in Rome—Caesar, Pompey, and Crassus—formed a political alliance called the First Triumvirate. In the early years, the alliance was quite successful. The three men were able to win short-term political advantage and influence the rule of the Roman Republic.
I bring this up because we have something similar going on in the Price Movement section of our main stock market model. The three actors in this case are the Trend, Momentum, and Participation composites. They make up half of the price-based portion of the model and are arguably the most powerful half.
These three composites share a common goal: assessing the direction of the stock market’s price action. Trend answers the question: are prices generally rising or falling? Momentum takes that one step further and measures the speed of the price movement. And participation looks at how many other price indices or stocks are moving up or down together—or what we generally call “breadth.” When the three composites give a similar message, it’s usually a good indicator of what the overall stock market is doing.
For example, the Trend composite (shown below) bottomed out in October 2022 and has trended higher ever since. This was a sign that the stock market’s overall price trend was no longer falling—as it was in 2022—but instead moving higher. With a current reading of roughly 92%, the Trend composite remains quite bullish on the stock market.
Similarly, the Momentum composite has been trending higher as well. It also has a current reading of 92%, suggesting that the market’s momentum remains strong, and therefore, prices will likely continue trending higher.
The final piece of the triumvirate is the Participation composite. This one had a hiccup this past fall but has since rebounded strongly; so strongly, that its current reading of 92% is the highest it’s been in three years.
So, the triumvirate looks quite powerful at the moment, with all three composites spitting out a reading of 92% bullishness. This is significant because most of the composites in our primary stock market model are either neutral or negative right now. But because of the triumvirate’s strength, the overall model is still hovering near positive territory, as the chart below shows.
With that said, however, students of history will remember that Rome’s First Triumvirate didn’t last long. One of the members died, and Caesar eventually came into power amid chaos and civil war. If our stock market triumvirate follows a similar path of deterioration, it could be a warning sign of potential weakness on Wall Street—and that would likely cause us to reassess our evaluation of the current market environment.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.
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