This past Juneteenth holiday, while we barbecued in my backyard, a friend complained to me that he just got a salary increase but he still frets about money, because his higher pay simply encourages his family to spend more.

I explained to him that he’s experiencing the “hedonic treadmill.” The word hedonic relates to pleasant or unpleasant sensations. According to the concept of the hedonic treadmill, when change happens, good or bad, human beings tend to quickly adapt. They return to their previous level of happiness.

What’s all this have to do with investing? The S&P 500 and NASDAQ indices have both exited the bear market. The tech-heavy NASDAQ has been on a tear and is up more than 30% year to date. The Dow Jones Industrial Average is lagging but remains positive for the year.

And yet, many investors have little love for this new bull market. They’re used to getting their brains beaten out by the pandemic and the bear market. I’ve been seeing a lot of downbeat chyrons on CNBC lately. This one from Tuesday is indicative: “Can You Trust This Rally?”

To which the technical indicators answer: Yes. I’ll explain below.

WATCH THIS VIDEO: The Lonely Bull: Why This Unloved Rally Keeps Going

Equity markets have commenced the holiday-abridged week on a downbeat note. After falling Tuesday, the main U.S. stock market indices extended their losses and closed lower Wednesday as follows:

• DJIA: -0.30%
• S&P 500: -0.52%
• NASDAQ: -1.21%
• Russell 2000: -0.20%

The S&P 500, after enjoying a five-week winning streak, is experiencing a slight retreat. However, it’s worth noting that more than 60% of S&P 500 stocks are still above their 200-day moving averages. Big tech has driven the rally, but we’re seeing better market participation, which is a reassuring sign.

As you can see from the following chart, the S&P 500 as a whole hovers well above its 50- and 200-day moving averages:

Source: Yardeni.com

The moving average gives us a clue as to whether the trend is up or down; it also identifies potential support or resistance areas.

The New York Stock Exchange Advance/Decline (NYAD) line also hovers above its 50- and 200-day moving averages. The NYAD line reveals overall market sentiment, by showing us whether there are more stocks rising or falling. The NYAD is a gauge that can confirm price trends in major indices and serves as a red flag for reversals when divergence emerges.

Meanwhile, the CBOE Volatility Index (VIX), aka the “fear gauge,” has fallen below 14. A reading below 20 generally indicates less stress and anxiety in the market.

In terms of macroeconomic headlines, we’re facing a relatively light calendar of data this week, keeping investors fixated on the underlying currents of Federal Reserve policy. Interest rates are seeing a modest decline, with 10-year Treasury yields descending below the 3.75% mark.

One important report, though, came Tuesday from the housing sector. In a surge of activity, housing starts experienced a substantial spike in May. The construction of 1.63 million new homes marked a staggering increase of nearly 22% compared to April and a notable 6% rise from May 2022. Simultaneously, new building permits reached 1.49 million in May, surpassing the 1.42 million figure from April.

A home is still the biggest asset of most Americans and remains integral to consumer confidence. When the real estate market prospers, people feel wealthier. That’s why this week’s positive housing sector data will reverberate throughout 2023.

These housing sector statistics serve as a leading indicator for forthcoming construction endeavors. While weather conditions may have played a role, I speculate that the decline in interest rates during March and April may have reignited demand for housing.

Although the housing market is currently far from the activity levels witnessed in 2021, the rebound in construction and permits signifies that housing investment could be stabilizing despite the broader deceleration in the overall economy. The strengthening “wealth effect” among American households could serve as a catalyst for future stock market gains.

That said, the energy and materials sectors have been under pressure, due to a decline in commodity prices. Global economic growth is slowing, which is dampening demand for cyclical commodities such as copper, iron, aluminum, and crude oil.

The unexpected weakness in China’s economy is particularly weighing on commodity prices. OPEC+ has cut production, but traders are more worried about slumping demand than tightening supply. That’s a recessionary signal for the economy, but it’s also good news in the fight against inflation.

The hawkish pause…

Looking ahead, an opportunity for additional insight into Federal Reserve policy arises as Fed Chair Jerome Powell testifies before Congress on Wednesday and Thursday. I don’t anticipate any groundbreaking policy revelations.

As usual when Powell fields questions on Capitol Hill, the financial illiteracy of our nation’s lawmakers will be on display. Powell told the U.S. House Financial Services Committee on Wednesday that more rate hikes are coming because the inflation fight “has a long way to go.”

The Fed’s most recent action can be characterized by an oxymoron: a “hawkish pause.” The central bank opted to keep rates unchanged, ending a period of aggressive tightening, while hinting at future rate hikes.

I just described reasons why you should remain bullish. To paraphrase the famous subtitle of the movie Dr. Strangelove, you should learn to love the bull. When the market dips, buy the equities on your “wish list.” During this nascent stage of the new bull market, now’s your chance to scoop up quality stocks that still trade at reasonable valuations.

However, if you’re still a bit nervous about this rally, I suggest you consider the advice of my colleague, Robert Rapier.

As chief investment strategist of Rapier’s Income Accelerator, Robert has developed strategies that make money in bull or bear markets. By following his advice, you can mitigate risk but still stay in the game. Click here for details.

John Persinos is the editorial director of Investing Daily.

Subscribe to the Investing Daily video channel by clicking this icon: