Pro Perspectives 3/9/21

March 9, 2021

Yesterday we looked at charts of the key "big tech" stocks.  These stocks (FB, AMZN, AAPL, TSLA) make up over 13% of the S&P 500 index.  And the recent drag from these stocks had the index in a vulnerable position at yesterday’s close. 

Today, we get a big bounce back, which bolsters the technical picture for the S&P 500 (as you can see in the chart below). 

So, this big trendline remains intact.  That's good news, because this line has plenty of significance.   

If we look back at major turning points in markets, historically, they tend to come with some form of intervention.  This past crisis was no different.  It took intervention to mark the bottom for stocks.  The Fed came in last year, on March 23rd, promising to buy unlimited Treasuries, and they announced that they would buy corporate bonds AND corporate bond ETFS.  This latter piece meant the Fed had (officially) crossed the line, and had entered the stock market.

That gave us everything we needed to know about how the Fed would respond to a falling stock market.
The Fed knows how important the stock market is in promoting confidence, stability and wealth (and therefore, economic recovery).  If stocks were to get messy (i.e. a quick and "disorderly" decline), we know exactly what they would do.  There is no doubt. They would outright buy stocks.
In fact, they will do anything and everything to preserve stability and to preserve the recovery — and to protect the trillions of dollars that have been spent to manufacture that recovery.  With that, any dip in the benchmark S&P 500 is a buying opportunity.