After reaching a record high in early 2022, the S&P 500 saw a bearish trend emerge in waves. Despite a somewhat hawkish economic environment, the overall trend for the year was a net loss of -19.76%.
However, there were periods of opposite trend, including strong increases of 18.92% from June to August and 19.36% from October to December.
It is uncertain whether the worst is behind us and the Federal Reserve is close to a pivot, but things can change quickly.
For example, in December 2021, the Fed predicted 2-3 rate hikes for the year, but by June, they had implemented three 25 bp increases at each meeting until December, when they scaled back to a 50 bp increase.
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Markets Predictions For 2023
In 2021, the global economy was largely recovering from the impacts of the previous year’s pandemic, aided by reopenings and significant stimulus spending.
The Federal Reserve had been discounting the temporary nature of the inflation that had been building up, but by November 2021, it became clear that the inflation was permanent and would need to be addressed with stricter economic policy.
As a result, the Fed raised its outlook for rate increases in 2022 from one to two to three at its December rate decision.
However, in early January 2022, concerns about Russia’s actions on the Ukrainian border and the potential disruption to Europe’s food supply added to the already difficult economic situation of rising inflation.
This caused significant price changes, and the S&P 500 set its first-quarter low on the day of Russia’s invasion of Ukraine in February.
After the Fed’s initial rate increase in March, the S&P 500 saw a significant rally in the second half of the month.
But in the second quarter, bears returned and dominated until the June FOMC rate decision, when the Fed raised rates by 75 bp for the first time in 40 years. The S&P 500 then began to rise, increasing by 18.92% over the next two months until August.
However, comments by the Fed’s chair, Jerome Powell, at the Jackson Hole Economic Symposium in August signaled a change in direction and a new bearish trend emerged, lasting until October 13. From then until December 13, the S&P 500 saw a rise of 19.36%.
Overall, the S&P 500 experienced swings of more than 12% on the daily chart six times, with four of those swings totaling more than 18.92%. This made for a volatile year for swing traders.
S&P 500 Daily Price Chart
S&P 500 Long Term Forecast
When we consider the movements of the S&P 500 over the past year, we can see a few key points of importance. The year’s low occurred just above the 3500 level, which corresponds to the 50% point of the previous major move.
On October 13, this level served as a pivot point due to a higher-than-expected inflation rate, showing its significance as a support level.
This positive trend continued until a test of the sell-50% off level at around 4155, which also coincides with a swing high from September and has the potential to create a double top formation, a bearish signal.
Currently, the S&P 500 is maintaining support above the 38.2% Fibonacci retracement of the previous advance and the 23.6% of this year’s sell-off, both of which are located around the 3802-3810 level.
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S&P 500 Weekly Chart
From trading view
NASDAQ 100 LEAPS DOWNWARD, LAGS UPWARD
The tech-heavy Nasdaq index has underperformed and led the way lower throughout the year, with a decline of more than 34% from its highs in January. In comparison, the S&P 500 is only down 19%.
There is a distinct area on the chart that has helped to support the lows for the Nasdaq, spanning the Fibonacci retracement levels of 10,501 and 10,751, with 10,501 being the 61.8% retracement of the previous move.
The top of this zone helped to hold the lows in November, while the bottom of the zone caught the lows in October.
If sellers are able to cause a breach, the next support level, which is also a psychological and Fibonacci level, is at 10,000.
The pre-pandemic swing-high is slightly lower at around 9763, so this may be a zone of interest for bearish continuation possibilities heading into next year.
Nasdaq Weekly Price Chart
From trading view
Dow Jones Into The Future
Although it may not seem like it based on the Dow’s performance alone, 2022 was a challenging year for equities. The Dow has declined by roughly 9% for the year, compared to the 34% decline in the Nasdaq and the 19% decline in the S&P 500.
However, the Dow saw significant volatility in the fourth quarter, with a 17% increase from its October low and a temporary increase of almost 23% at one point.
Currently, the Dow is considered the “cleanest shirt in the soiled linen,” but it remains to be seen if it will be desirable to investors in the coming year.
Since last week, the index has maintained support at 32,789, which was the swing high from September and also coincides with a candlestick chart projection.
Dow Jones Weekly Price Chart
From trading view
A bearish pattern that emerged a few weeks ago suggests that there may be potential for a turnaround in the current area.
Bearish patterns indicate shifts in momentum, and based on recent price movements since the December CPI reading, this pattern could still be relevant in 2023.
The resistive reaction occurred at the psychological level of 35k, which is a crucial location. Until bulls are able to eliminate bearish potential, it will continue to be a possibility.
From trading view
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