Keeping the long-term in perspective while keeping an eye on key tactical levels.
At the beginning of January we featured the chart below to illustrate the underlying 4 year market cycles that define the longer-term secular trends of the S&P 500. Of course, the cycles do not perfectly bottom every 4-years, but the pattern is reasonably consistent to consider in an investment process. As we noted in early January, these multi-year market cycles are primarily driven by liquidity supplied by central banks and the corresponding reaction by the underlying economy.
With central banks beginning to transition toward raising interest rates in the coming quarters, investors are understandably concerned that the market cycle that began in 2020 may be peaking. For longer-term investors, the chart below and on the following page suggests the cycle is showing technical evidence of maturing, but it is premature to conclude the cycle has turned negative.
Is there risk of a bear market? Possibly, but our expectation is for 2022 to remain choppy with weakness likely in 2023 that sets the stage for another cycle low in 2024 near the rising 4-year (200- week) moving average. On the next page we discuss why the January low near S&P 4200 serves as a useful technical risk control level for investors that are more tactical.