Here’s Why Stocks Could Stage a Rally As a Bullish Indicator Flashes

Happy Friday, team. I’m senior reporter Phil Rosen. 

In case you missed it, the European Central Bank Thursday made a half-point interest rate hike, marking its fifth consecutive move as part of its inflation-fighting efforts.

EU policymakers plan to make the same sized hike at their meeting in March, similar to expectations for the US central bank to repeat yesterday’s rate hike at its next meeting.  

Speaking of rates, today we’re going over a key economic indicator that suggests more upside ahead for stocks. 

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1. Ever since the Fed started tightening policy last March, the stock market has been highly susceptible to interest-rate volatility. 

And as Insider’s Anil Varma writes, falling bond-market volatility is now underpinning the rebounding investor confidence in equities. 

Based on stocks’ blistering January rally, there seems to be a growing sense of optimism for 2023 — despite bleak Wall Street forecasts, as well as the Fed’s insistence that more rate hikes are coming.

Specifically, the MOVE Index — which measures volatility of US Treasury yields — has dipped to lows that haven’t been seen since the Fed’s first rate hike of this cycle. This means potentially smaller swings in the stock market as highly rate-sensitive equities get some relief after big rate moves battered indexes in 2022. 

Data shows that the trajectory of the S&P 500 has been almost a perfect inverse image of the MOVE index over the past year, illustrating the market’s heightened sensitivity to the interest-rate outlook.

All the while, US trading trends have pointed to increasingly positive market sentiment, as has a key “golden cross” indicator that’s widely considered a bullish sign. Stocks saw sustained rallies in 2016, 2019, and 2020 following the flashing of the golden cross.

And since Jerome Powell didn’t completely dash investors’ hopes of a dovish policy pivot at his speech on Wednesday, the market’s enthusiasm looks poised to hold up, according to billionaire “bond king” Jeffrey Gundlach.

“There was just something about his demeanor,” Gundlach told CNBC. “He just seems like he has confidence, he feels comfortable in where he’s gotten to, and I think everybody kind of sensed that. And he obviously did not fight back against market pricing.”

Are markets right to feel confident after Powell’s speech and heading into the rest of 2023? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know. 

In other news:

2. European stocks and US futures fall early Friday, after gloomy earnings from Amazon, Google, and Apple underlined the troubles facing Big Tech. Meanwhile, Nordstrom shares shot up after Ryan Cohen reportedly took a stake. Here are the latest market moves.

3. Earnings on deck: Mitsubishi, Cigna, and more, all reporting.

4. Following the Fed’s latest rate hike, economists and strategists shared where to put cash right now. Top experts from across Wall Street broke down the best investments to make as the central bank’s policy threatens to tip the economy into a recession. See the 8 recommendations. 

5. Mark Zuckerberg’s net worth spiked $12 billion this week thanks to Meta’s stock rally. Investors have cheered the social media company’s cost-cutting plans, and the founder has reaped the rewards. Now Zuckerberg’s sitting on roughly $69 billion.

6. Ray Dalio warned that “money as we know it is in jeopardy.” The Bridgewater Associates founder told CNBC that there’s a looming currency crisis with too much money printing happening. Here’s what the legendary investor sees as the best option moving forward.

7. Oil giant Shell said it will spend $4 billion buying back shares. The announcement follows the company reporting its highest-ever annual profit. Over the last year, Shell booked massive natural gas business thanks to sky-high prices. 

8. Here’s how to pinpoint the housing markets that will see the biggest declines in 2023. BiggerPockets’ star Dave Meyer predicted housing prices will drop across the country, but said regional shifts will vary widely. He also explained why real estate in the most expensive cities could fall 30%. 

9. Jeremy Grantham’s right-hand man shared five trades to start making right now. These moves, according to Ben Inker, can provide the best returns and the smallest downside risk in the cheapest parts of the market. Get the details.

10. Stocks like Carvana and Bed Bath & Beyond are getting a huge boost right now. Risk appetite is returning to markets now that the Fed has acknowledged falling inflation. In his Wednesday speech, Powell mentioned the word “disinflation” 13 times.

Curated by Phil Rosen in Los Angeles. Feedback or tips? Tweet @philrosenn or email prosen@insider.com

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.