Welcome to my latest video presentation for Mind Over Markets. The article below is a condensed transcript; the video contains additional details and several charts.

To quote the title of a classic children’s book, the stock market in 2022 had a terrible, horrible, no good, very bad year. The S&P 500 last year declined 19.4%, its worst performance since the crisis year of 2008.

But so far in January 2023, the stock market has sharply rebounded. We witnessed bear market rallies in 2022 that fueled our hopes but then fizzled. Are we witnessing yet another head fake? History suggests we aren’t.

The stock market rarely posts years of back-to-back declines. On average, the S&P 500 gained 15% in years following a negative year. Of course, past performance is no guarantee of future performance, as the saying goes. But the indicators are auspicious.

Last week, the main U.S. stock market indices posted another winning week and are firmly in the green year to date. Leading the way has been the tech-heavy NASDAQ, as inflation wanes and investors grow hopeful that the Federal Reserve’s interest rate tightening will eventually ease.

Stocks sharply rose last Friday, in the wake of encouraging news about the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index.

The Bureau of Economic Analysis (BEA) reported last Friday that the “core” PCE, which excludes food and energy, rose 4.4% from a year ago, down from the 4.7% reading in November and meeting consensus estimates. That was the slowest annual rate of increase since October 2021. On a monthly basis, core PCE increased 0.3%, also in line with estimates.

International stocks have been rebounding as well, especially in Europe. Major economies in the European Union, notably the regional growth engine of Germany, are weathering the war-induced energy crunch better than expected.

Crude oil prices have been volatile but they’re starting to edge higher again as analysts increasingly predict we’ll avoid a painful recession this year.

The S&P 500 last week breached its 200-day moving average, a technical trend that’s bullish. The 200-day moving average represents the average closing price over the past 200 days. The S&P 500’s move above that average signals a full long-term trend reversal.

But you need to brace yourself for continued volatility. Past market rebounds typically have been characterized by dramatic ups and downs, as stocks struggle to gain their footing.

The January rally hasn’t been restricted to just equities. Bonds also have bounced back this month, following a dismal year.

In the years following 15%-plus drops in equity prices, bonds averaged a 5.9% return. After a down year for stocks, bonds averaged a 9% return. It has been a long frustrating wait, but 2023 appears to be the year that bonds will be back in vogue with investors.

The week ahead…

We face a crowded economic docket in the coming days. The major reports to watch include:

The S&P Case-Shiller home price index and the consumer confidence index (Tuesday); ADP employment report, S&P manufacturing PMI, construction spending, federal funds rate, Fed Chair Jerome Powell’s press conference, and motor vehicle sales (Wednesday); initial jobless claims (Thursday); nonfarm payrolls, unemployment rate, average hourly earnings, labor force participation rate, S&P U.S. services PMI, and ISM services index (Friday).

The big news this week, of course, will be the Fed’s decision on interest rates, which will be announced Wednesday at the conclusion of the two-day meeting of the policy-making Federal Open Market Committee (FOMC).

According to the CME’s FedWatch tool, the Fed will likely boost rates 0.25 percentage-points at both its February 1 and March 22 meetings and probably hold rates steady after that. Let’s just hope Jerome Powell’s post-meeting remarks aren’t surprisingly hawkish and tank the markets.

Editor’s Note: The year 2022 was dismal for the stock market. As 2023 unfolds, are you eager to finally make some big money? Consider the advice of our colleague, Jimmy Butts.

Jimmy Butts is the chief investment strategist of our premium trading service Maximum Profit. Jimmy isn’t satisfied delivering mediocre returns that just barely beat the market. Instead, Maximum Profit is designed to present you with opportunities to generate life-changing fortunes.

Jimmy’s trading system right now has detected a stealth bull market in gold and gold miners. The time to act is now, before the rest of the investment herd catches on. Click here for details.

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: