By: Devon Porpora
Senior Managing Director, Wealth Manager
First Republic Investment Management
Technical analysis is using patterns and historical behavior to predict where the stock market is headed. Technicians will focus on things like market breadth (number of stocks rising), investor sentiment, volume of transactions, momentum and chart patterns. Fundamental analysis is using current and expected economic activity to predict where the stock market is headed. Fundamentalists will focus on things like price to earnings multiples, leading indicators, CEO business confidence and economic forecasts.
Today, most research shop’s technical and fundamental analysts are in direct opposition to one another. Most technical analysts are saying that it is very likely a bottom is in place and are mostly bullish. Most fundamental analysts see a serious earnings slowdown and a potential recession ahead of us and are bearish. It is rare that both viewpoints are so far apart. For what it is worth, I have found that technicians are usually correct as fundamental statistics and economic forecasts are incredibly volatile in a time of stress. We will see if that is the case this time around.
We are starting to lessen our defensive positioning though not abandoning it. The Federal Reserve has its annual Jackson Hole retreat this week which will end with a major update from Chairman Powell. He is expected to say inflation is moderating but they will remain aggressive until it is closer to their 2% target. We will be paying close attention. For more click here.