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<center><figure class="figure"><a class="lightbox" href="/onlinecourse/images/" data-plugin-options="{'type':'image'}"> 
<img class="figure-img img-fluid" src="/onlinecourse/images/" /></a><figcaption class="figure-caption"><strong>A caption...</strong></figcaption></figure></center>

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Trading on Wall Street has begun the new year with a strong mini-rally based on:
<ul style="text-align: justify;">
<li>The rise in the oil price since 5th January 2023, </li>
<li>The sixth consecutive monthly drop in the inflation rate and </li>
<li>The consequent optimism that the Federal Reserve Bank will increase the Fed funds rate by only 25 basis points instead of 50 basis points when it meets again on 1st February 2023. </li>
</ul>
We have been saying for many months now that the current bear trend has been characterized by unusually high levels of investor optimism, mainly because it was triggered about 18 months early by the start of the war in Ukraine which spiked oil prices in March 2022.
The current rally, which began on 6th January 2023, had, by Friday last week, taken the S&P500 index back up to its long-term downward trendline. A break above that trendline next week would perhaps signal that the bear trend was over, and a new bull trend was beginning – but we think that is unlikely.
Obviously, this is a particularly important moment for private investors. Consider the chart:
 
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<figure class="figure"><a class="lightbox" href="/onlinecourse/images/sp_art15jAn2023.png" data-plugin-options="{'type':'image'}"> <img class="figure-img img-fluid" src="/onlinecourse/images/sp_art15jAn2023.png" /></a>
<figcaption class="figure-caption">S&P500 Index: 18 August 2022 - 13 January 2023. Chart by ShareFriend Pro.</figcaption>
</figure>
</center>
 
You can see here the long-term bear trend in the S&P together with the 200-day simple moving average (blue) and the 50-day exponential moving average (black). Also marked on the chart are the support/resistance levels at 4170 and 3900. The third rally in the bear trend is shown, as is the sideways movement during the festive season. The festive season is typically marked by very low volumes and is therefore more-or-less irrelevant from a technical point of view.
The mini-rally which began on 6th January has continued up until last Friday. The index rose over 6 days to just below the very well-established long-term downward trendline of the primary bear trend.
The rally has been stimulated by the drop in the US inflation rate to 6,5% in December 2022 - down from November 2022’s 7,1%. This is the sixth consecutive monthly drop in inflation from June 2022’s 9,1% peak. Investors are assuming that this means that the inflation rate in America is now firmly on its way down and that the interest rates have reached a “pivot point” – but we are not so sure.
The 223 000 jobs added to the US economy in December 2022 together with the 3,5% unemployment rate show that the US economy is still growing strongly and is at full employment. Until there is a drop off in employment we see the monetary policy committee (MPC) continuing to raise rates.
Many economists and analysts are now saying that the US economy will enter a recession this year and it is only the depth of that recession that is in question. We agree – and in fact we think that the depth of the recession will surprise on the downside. That, of course, must be reflected negatively in share prices, both in America and around the world.
Another consideration is that the earnings season has just begun in America where the S&P 500 companies report their earnings for the 4th quarter of 2022. It will begin with the big banks and progress from there. That too could easily surprise to the downside with a salutary impact on the S&P 500 index.