Weekly Market Outlook: Preparing for Potential Market Volatility Ahead

Last week I told you that the next few weeks would be critical to understanding the next few months. So far it has been no cakewalk with a flurry of warning signs popping up. We had several big earnings reports which mostly ended up mixed. We had the Fed make the decision not to cut rates. At the same time we have a huge spike in bonds and the dollar. We also saw a regional bank take a big fall bringing back fears of another March 2023 style crisis. Lastly, the Chinese stock market just crashed to 5 year lows.

All of this is giving me a bit of an uneasy feeling coming into this February window. We know we are 4 years removed from the Covid crash. At the same time we are seeing the same presidential matchup that we saw in 2020 and the same Super Bowl matchup. I am no political expert but it’s no secret that things are heating up for the US both overseas and at the border. As we know, history tends to rhyme and it sure feels like it is right now.

That being said, I told you this year would be full of events to worry about and that February was our first important month to keep an eye on for a possible major high. I want to be clear that I am still bullish on the markets over the longer term but I want to prepare you for when we may start to see more volatility. If we do get a correction, the length and severity will be telling to how strong the market is or isn’t.

Looking to some of our sentiment indicators we can also see that they are reaching the warning territory. Just over the course of the last week we saw a huge spike in bullish sentiment from the American Association of Individual Investors. Bullish sentiment increased nearly 10% in one week while the neutral sentiment took a plunge. We are now at historically high levels of bullish sentiment.

From a technical standpoint the S&P 500 isn’t showing much yet. However, as I mentioned the dollar and bonds are giving us an early warning as to what may be going on.