Sensitivity At Market Highs: Weekly Nifty 9



Over the last year, the S&P 500 has spent nearly 90% of trading days above its 200-DMA, the longer-term moving average.  That streak isn’t especially long relative to history, but what is notable is how long it has been since there has been a 1-year period where the S&P 500 was below its 200-DMA more than half of the time… more than half the time… more than half the time!

The reason for the repeating of “more than half the time” above is to solidify and define investor behaviors related to “buying the dip”. This longer-term perspective of how the market performed/s belies the 2009 – 2020 bull market, and if history is any guide, should continue with the newer bull market that began in mid-2020.

Research Report Excerpt #4

Fiscal stimulus checks, improving jobs recovery and lack of avenues to spend have left many consumers flush with cash and excess savings not seen since the 1940s. This lays the foundation for consumer spending that is reminiscent of the end of World War II. Just as consumer spending came to a standstill in the early months of the coronavirus, spending halted in the 1940s when wartime rationing was enforced, and saving for a brighter future was encouraged by the U.S. government. This led to a savings rate of 23% in 1945, up from 4% in 1930 (Chart below). The end of the war unleashed tremendous spending across both the goods and services industries. Factories responded by shifting from wartime production to meeting this new consumer demand, beginning with the automobile industry. New car sales quadrupled between 1945 and 1955,5 while GDP levels recovered from $226 billion in 1945 to $534 billion in 1960.6 If similarities hold, we should see a continued U.S. expansion as pent-up consumer demand is released into the economy upon further reopening this year.

As the economy rapidly accelerates out of the coronavirus-induced recession, some lingering effects need to be understood. An important one is the near-term trajectory of inflation. The depths of the crisis saw 3 months of deflation as measured by monthly changes in the Consumer Price Index (CPI). March, April, and May of 2020 saw price declines of -0.3%, -0.7%, and -0.1%, respectively. Three consecutive deflationary readings is unusual, happening only 3 other times in the past 7 decades (Global Financial Crisis, Tech bubble, and Saving & Loan Crisis). These low CPI readings lead to what economists term “base effects.” Since the base on which CPI is measured was so low one year ago, future YoY CPI readings will be relatively high. In fact, even with no inflation at all, exceedingly unlikely, YoY CPI will likely register above 3% in both April and May! If inflation simply averages the same monthly rate it has since 2019, still a conservative estimate, CPI should be in the 3% to 4% range for 2021 in our view, averaging 3.3% on the whole of the year. (Merrill Lynch)

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