5 Charts We Are Watching

Market Blog

There are many charts that caught our attention this week, and today we share the top 5 charts we’re watching.

The S&P 500 Index recently had a four-week losing streak and fell nearly 10% along the way, while the Nasdaq and many large-cap tech stocks fell even more. Then in a big move higher over the past two weeks, many stocks moved from oversold to overbought in a very quick timeframe.

As the LPL Chart of the Day shows, more than 90% of the components in the S&P 500 were beneath their 10-day moving average on September 24 and within two weeks saw more than 90% above this short-term trend line. This type of buying thrust is consistent with future strong returns, suggests quick reversals from oversold to overbought are a good thing and could bode well for stocks to outperform bonds well into 2021.

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Parts of the economy are opening back up, while employment continues to disappoint. One specific area that continues to improve is how many people are flying, as the seven-day average number of travelers going through Transportation Security Administration (TSA) checkpoints hit a new recovery high. We discuss other high-frequency data points in our COVID Surge Stalling Europe’s Recovery blog.

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We’ve noted before that stock market gains ahead of the election historically support the incumbent party, while if stocks are lower it tends to support new leadership in the White House. Taking this further, the US dollar also tends to send signals for who might win. In fact, when stocks are up and the US dollar is lower ahead of the election, or if stocks are lower and the US dollar is higher before an election, the results have accurately predicted the last seven times those scenarios took place. Given stocks are up and the US dollar is slightly lower, this could be one clue the upcoming election will be much closer than many are expecting.

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Sticking with the election, many investors are worried about higher taxes and more deregulation if former Vice President Joe Biden wins. “Higher taxes may be one part of it, but Biden is also looking at huge spending initiatives,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Stock markets like spending, and this could more than help offset potentially higher taxes.” Lower tariffs could potentially provide another offset as well.

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Last, Friday’s retail sales report came in better than expected, marking five consecutive months of year-over-year gains. It is worth noting the economy has never been in a recession after 4 or more consecutive monthly gains. Still, in the face of one of the most severe recessions ever, it took only a few months for sales to get back to new highs, as shown below. Historically, new highs in retail sales happen in expansions—and this is yet another clue the recession is likely over.

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