Arguably, the ARK Innovation ETF (ARKK) was a leading indicator for the market during the pandemic bubble and then bust. And now ARKK—as well as the Nasdaq 100 (QQQ)—are now showing signs of strength from a technical standpoint. For starters, each of these two bellwethers (purple) have now broken above their 50-day moving averages (orange), while the S&P (SPY) and Dow (DIA) haven’t yet.
Without question, the economy is facing significant challenges right now with high inflation and the fed’s increasing interest rate trajectory. However, the market is generally considering more forward looking than the economy, and seeing leaders (such as QQQ and ARKK) breaking above resistance is one indication of growing strength to stir into your pot. We believe markets are eventually going higher, and that buying when prices are lower (for example right now versus the start of the year) is more attractive.
For a little more perspective, here is a look at current BBB-rated corporate credit spreads. This is basically the interest rate on BBB bonds minus the 10-year treasury yield, and it is an indication of risk in the market.
Interestingly, this spread has ticked lower in recent session (hard to see in the chart above)—potentially another good sign. And if credit spreads show increasing signs of having already peaked, and the major indexes increasingly break through and hold key technical levels—the market can rebound dramatically from here (remember, the first half of 2022 has been the worst start to markets in 50 years!
The Bottom Line:
Most importantly, disciplined long-term investing has been a winning strategy throughout history, and we believe it will be this time too. Of course the market can turn lower again from here, but long-term we are going higher and the “tea leaves” are showing increasing signs of “all clear” strength from here.