In September, the broader market indexes fell anywhere from 5% to 7%. This volatility bled into October, forcing investors to wonder if the market is forecasting a recession or a deeper correction. In previous blogs (i.e Cancel the Recession), we have suggested any potential recessions should be short-lived and should not derail the long term investor. However, during periods of turbulence, we feel it is important to take a step back and attempt to focus on the overall direction of the market.

By ignoring the ‘noise’ and immediate news cycle, recognizing the secular cycles and trends of the market can help investors appreciate longer term investing. Highlighted below is a technical analysis view of market direction.

Long Term: The US equity markets remain in a long-term secular bull market. As suggested in the chart below, this long-term cycle usually persists for 16 to 18 years. This implies that the market has further upside potential into the mid-2030s. For the S&P 500, the analyst notes that this could reach a level of 14,000.

Medium Term: Within the long-term secular bull market, an interim 4-year cycle is often seen. In this current 4-year cycle, the lows appear to have formed in Q4 2022. Certain indicators, like monthly momentum, suggests there could be further upside strength into 2024. The number of S&P 500 stocks with rising weekly momentum went from overbought levels in the summer of 2023 and has gradually transitioned to an oversold scenario in Q4.

Short Term: The S&P 500 has been in a pullback mode with “lower-highs” and “lower lows”. With September breaking back to June levels, the market appears to be ‘testing’ the summer narrative of a ‘soft landing’ for the economy that initially helped propel the market higher. Keeping above the June levels and the 200-day-moving-average line will be important levels to watch. Should the market be able to hold this line, a trading low should be expected.

Technical analysis can be a useful tool, however, we prefer to use it as a compliment to fundamental analysis including corporate earnings, path of inflation and interest rates and market valuations. The most important question that investors should ask themselves is that of their investment time horizon. For long term investors, the evidence suggests that patience will be rewarded. However, an investor with shorter term horizon may need to make adjustments to their portfolio. We encourage investors to speak with our team of advisors to review their portfolio positioning. During periods of volatility, drastic measures are seldom rewarded. A tactical rebalance that maintains exposure to future recoveries will help one achieve their long term objectives.