The second quarter of 2023 promises to be an interesting one as investors gauge the validity of U.S. indexes. After a bullish rally in 2021 and a bearish start to 2022, market conditions in the first quarter of 2023 created a range-bound environment, leaving traders to predict the direction for the second quarter.
The four major U.S. indexes of importance to traders and investors are the S&P 500, the Dow Jones Industrial Average (DJIA), the NASDAQ Composite, and the Russell 2000. Currently, all four indexes are still trading below the 23-month moving average, which is another way of measuring the progress of the economy’s cycle.
April seasonality trends do hint to the market continuing its buying pressure, as over historical data the S&P 500 has consistently posted positive April returns with an average of 1.5%. The highest positivity rate is seen in April, suggesting the possibility of an upswing.
The most likely index to break the 23-month moving average first is the Dow, as industrial stocks and companies have the most pricing power in an inflationary environment. This is followed by the NASDAQ Composite, which if the Federal Reserve pauses, could see growth stocks continue their run from March. The S&P 500 is close behind, with the potential to break next, as large companies tends to suffer in an inflation-driven market. Finally, the Russell 2000, which tends to fare the worst, could lag in its attempt to overcome the 23-month moving average.
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