“If it wasn’t for bad luck, you know I wouldn’t have no luck at all.” Those famous blues lyrics, by Albert King, characterize 2022 for investors. Nothing seemed to go our way last year. However, so far in 2023, Wall Street has said goodbye to the blues.

It’s increasingly apparent that conditions are falling into place for a new bull market, although for the reasons I explain below, we still face a bumpy ride.

The stock market rally continued its momentum last week, with the technology-intensive NASDAQ in the lead. The tech sector has been on a tear, as the Federal Reserve strikes a more dovish tone.

This overall market rally is impressive for its breadth. Both the New York Stock Exchange Advance Decline line (NYAD) and the S&P 500 have broken above their 200-day moving averages.

Economic data suggest a slowing economy, which is what the Fed has been striving for to curb inflation, but the robust labor market should mitigate the downturn.

We’re not exactly witnessing a “Goldilocks” dynamic; there’s still too much potentially bad news out there. Monetary policy tends to exert a lagging effect, so we have yet to witness the full impact of the Fed’s tightening.

However, the elusive goal of a “soft landing” for the economy seems within our grasp. Hence the gains last week and year-to-date, albeit with a slight weekly dip for the Dow (see chart):

Make no mistake, we’re not out of the woods. The Russia-Ukraine war is entering a dangerous phase, as Russia prepares a massive offensive and Western allies funnel increasingly sophisticated weapons to Ukraine. China continues to grapple with COVID, made worse by Beijing’s bungled pandemic containment policies.

In the U.S. Congress, the debt ceiling fight poses a threat to financial markets. I typically urge investors to ignore partisan histrionics in the nation’s capital; debt ceiling impasses have been solved in the past. However, this time around might be different. We’ve seen the emergence in Washington of political arsonists who seem intent to simply burn things down, as evidenced by the January 6 insurrection.

The most encouraging trend is the decline of inflation. You may not think so, if you’re fond of eating eggs, but prices for most key items have been sharply falling. Notably, the price of crude oil is down 40% from its peak last year.

Corporate earnings are another source of anxiety. As of this writing, the blended earnings decline for the fourth quarter of 2022 is -5.3%, according to research firm FactSet. “Blended” combines actual results for companies that have reported and estimated results for companies that have yet to report.

WATCH THIS VIDEO: Big Tech Hits a Speed Bump

Projections call for Q4 earnings to eventually land in positive territory, but last week’s earnings and revenue misses by Big Tech have prompted Wall Street’s bulls to pause for breath.

The main U.S. stock market indices closed lower Monday as follows:

• DJIA: -0.10%
• S&P 500: -0.61%
• NASDAQ: -1.00%
• Russell 2000: -1.40%

Apple (NSDQ: AAPL), the world’s largest publicly traded company and an economic bellwether, reported weaker-than-expected results last week for the holiday quarter.

Apple CEO Tim Cook said in a conference call with investors: “We know that Apple is not immune,” regarding macroeconomic challenges. The following chart tells the story:

That said, falling inflation, a downshift in rate hikes, and a resilient global economy should serve as long-term tailwinds in 2023 for the tech sector in particular and the broader market as a whole.

The week ahead…

Keep an eye on these salient economic reports, scheduled for release in the coming days: New York Fed’s inflation expectations (Tuesday); initial jobless claims (Thursday); and the University of Michigan’s consumer sentiment index and inflation expectations (Friday).

The U.S. central bank closely follows inflation expectations because those expectations among businesses and consumers tend to be self-fulfilling. Fears about inflation have been easing; we’ll probably get further confirmation of that trend with Friday’s report.

It’s encouraging that overseas economies, notably in Europe, are weathering the disruptions of war better than expected. Major economies on the Continent, e.g. Germany and France, are successfully weaning themselves away from Russia’s oil and gas.

The global economy is forecast to post year-over-year growth in 2023 of 2.9%, which seems paltry but it’s certainly better than an outright recession. China, the world’s growth engine, is projected to post annualized growth of 5.2%, which is especially good news for tech giants such as Apple, which heavily depend on the country’s market.

The tech sector’s big bounce…

Despite last week’s batch of mixed operating results from Silicon Valley mega-caps, tech stocks as a whole have rebounded and they’re positioned for substantial gains in 2023.

Which brings me to my colleague Dr. Joe Duarte. In a new report, Dr. Duarte pinpoints a groundbreaking tech disruption worth $75 trillion (yup, that’s trillion with a “t”), and it all starts with one under-the-radar $3 stock.

Dr. Duarte is the chief investment strategist of our premium trading services, Profit Catalyst Alert and Weekly Cash Machine. He currently recommends an investment opportunity in the tech sector that’s poised for market-crushing gains. Learn more by clicking here.

John Persinos is the editorial director of Investing Daily.

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