An overheated equity market got a much-needed respite during the first few weeks of the new year, though strong buying activity to close the month re-affirmed the current uptrend.
The recent new high on the S&P should be seen as a bullish indicator, since one-year returns after new highs are positive roughly 85% of the time. As such, our Momentum Dial stays in a Positive position.
Forward looking economic data continues to improve off the low levels reached in 2023, most notably in new manufacturing orders, which improved in January for the first time in 17 months.
While it looks like the tide may be starting to turn, we await further confirmation from the economic data before moving our Fundamental Dial out of its Negative position.
A return to dominance from high growth technology stocks revives the concern over both an overconcentration to the sector within major indexes, as well as risks over lofty price-to-earnings ratios.
So far, tech earnings have justified their growth projections, though it remains a high bar to clear, leaving our Valuation Dial in a Negative position.
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