Since the beginning of the year, the stock market has been on a rollercoaster. The main drivers have been inflation, Federal Reserve interest rates actions, international politics, including the war in Ukraine and the dynamics in the Chinese economy and the US economiic policies. In Q4 2022, the stocks rose, in anticipation of a softening inflation following the rise in interest rates, some positive earnings ahead and softening worries of recession. But the volatility remains, driven by continued worries of recession and recent dynamics in tech companiies, including layoffs. The S&P 500, DOW, NASDAQ, Russell 2000, Crude Oil, Gold all have been impacted and went though major volatilities. Hence, the picture of the year until November 18, 2022 has been historic: a widespread volatility after a fueled momentum over 2021. As highlighted in several analyses, major questions coming from investors and users leveraging AroniSmartIntelligence™ and AroniSmartInvest™ capabilities remain focused on the findings from exploring the connection among the key Stock market indices, especially NASDAQ vs Dow Jones(DJI), S&P 500, Russell 2000, Gold, and Oil and generating some meaningful trends. Based on these questions, AroniSmart™ team, has continued to leverage the advanced analytics tools to analyze the trends of the key market indices. The key findings are captured in this article.
The performance over 2022 has significantly been impacted by the Federal Reserve's latest monetary policy regarding inflation, the continued uncertainty on the Chinese economic policies, worries of recession, Ukraine war and, somewhat, the impact of the COVID-19 pandemic new variants. At the beginning of the year, Economists and most major banks expected the Federal Reserve to raise rates, by a quarter-point, five times to seven times this year. So far, the interest rate has been raised six times, from 0.25% to 4.00%, with the 75point raise in early November 2022 marking a sixth consecutive rate hike and the fourth straight three-quarter point increase and pushing borrowing costs to a new high since 2008. The Federal Reserve is still widely expected to raise the target range for the federal funds rate in the next meeting but by smaller steps.
AroniSmart™ team, leveraging the Machine Learning Time Series capabilities, including Support Vector Machine, and Neural Network Analysis of AroniSmartIntelligence™ , has analyzed the trends of key stock market indices (DJI, NASDAQ, S&P 500, Russell 2000, Oil, Gold) between mid Nov 2021 and mid Nov 2022 and came up with insights and projections on the dynamics.
The insights are presented below (for disclaimer and terms, check AroniSoft website. For related analyses of Stock Markets using Time Series, Dominance Analysis, and Neural Network capabilities see here AroniSmartInvest and AroniSmartIntelligence Stock Market Analysis: Update on Market Sentiment and Highlighted Stocks at the End of Oct 2022).
The analysis produced the different measures of forecasting accuracy, including directional accuracy of Stock market indices. Directional accuracy is an important statistic when ones tries to look at the prediction of a given stock market indice vs others, for example, as in this case, the NASDAQ , S&P500, or DJI Adjusted Closing Price as a function of Open, Low, High, and Closing Prices and volume of other stock market indices, Gold, and Oil. There was also good insights from Dominance analyses that was performed to see whether there are major connections among indices, assuming investors are moving from some market indices to others, especially from tech dominated NASDAQ to DJI, or from stocks to Gold and Oil.
A little bit of the usual investment research before coming back to AroniSmart™'s findings.
Indices Momentum and Downward Trend
In general all indices have experienced an upward momentum over 2021 and to January 7, 2022: Dow Jones (.DJI) had grown by 16.84% to 36,231.66; S&P 500 (.INX) by 23.09% to 4,677.03; Nasdaq Composite (.IXIC) by 14.57% to 14,935.90; Russell 2000 Index (RUT) by 4.25% to 2,179.84, Crude Oil by 50.7% to 78.95 and Gold by -1.93% to 1,794.00.
Since then, year-to-date (YTD) by November 18, 2022, the stock indices have experienced very poor performance and have been significantly down. The downward trends have appeared to reverse in late Q1 and Q3 2022 but the market went back to high volatility, swinging between the opening and the closing of the market. Since early Q4 2022, the market has started to come back. In fact, starting with the second week of January 2022 to November 2022, all stock indices have decreased significantly and as of to date the performace is negative across the board with the following decrease by index: Dow Jones (.DJI): -5.22%; S&P 500 (.INX): -10.52%; Nasdaq Composite (.IXIC): -17.77%; Russell 2000 Index (RUT): -5.86%, Crude Oil: -1.09% and Gold: -0.62%.
The perforrmance YTD is even worse, except for Crude Oil, with: S&P 500: -16.80%; NASDAQ: -28.76%; DOW Jones: -7.1%; Russell 2000: -17.62%; Crude Oil: +6.48% ; Gold: -1.94%.
In the same time the Treasury Yield 10 Years (^TNX) has increased by a whopping 178.7%, as the Federal Reserve continued to raise rates.
Hence, the dynamics of all the stock indices appear aligned, with minor differential trends. All the indices, except Crude Oil and Gold, have been behaving similarly. This finding may suggest that the growing inflation, the worries of recession and the expected Federal Reserve economic policies have been the major drivers of the market, while the impact of various sectors and the specific composition of the different indices played a minor role. Another finding remains that, YTD, value stocks appear to have, relatively, performed better than growth stocks.
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Similar Trends with Differential Nuances.
AroniSmart™ team analyzed stock indices performance dynamics, leveraging the Econometrics and Time Series Support Vector Machine and Neural Network Multilayer Perceptron capabilities of AroniSmartIntelligence™ and Machine Learning and Sentiment Analysis of AroniSmartInvest™. The team uncovered interesting insights, as shown below. The team analyzed the performance of NASDAQ, DJI, S&P500 Adjusted Close vs Open and High prices of the other indices (DJI, S&P 500, Russell 2000, Crude Oil, and Gold) , and each indice's Adjusted Close vs other indices prices (open, low, high, adjusted close) and volume, from November 18, 2021 to November 18, 2022.
From the analysis, it was found that these indices basically follow similar trends. Also, they are all similarly impacted by the market conditions. However, the analysis found important nuances.
The key findings highlight: the indices studied had an upward momentum over most of the period. Trendwise, in late Q2- early Q3 2021, the stocks reached high or record price levels. Then in September and October, 2021, the dynamics pointed to a slow down, downward trends, seesaw movements, and there were major speculations about a potential correction. The volatility increased in Q4 2021. In early January 2022, all indices started giving up some gains and by January 28, 2022, they were significantly down, except for Oil. On January 31, all indices went up vs January 28, 2022.
Figure 1: Key Indice Price Trends - All Indices in Nov 2021-Nov 2022.
Figure 2: Key Indice Price Trends - Gold and Crude Oil in Nov 2021-Nov 2022l.
Figure 3: Key Stocks Indices Trends in April 2022- Nov 2022 -- Dow Jones (DJI) Test Data model.
Figure 4: Key Indice Price Trends in Nov 2021-Nov 2022 -- Dow Jones (DJI) Training Data model.
Over 2022 all the stocks indices built on an earlier momentum, almost following similar trends.
By July of 2022 most indices were above the average Q1 2022 levels. In early Q2 2022, all indices momentums were significantly impacted by the market conditions. In late May 2022, they bounced back and maintained momentum until late September 2021 (see charts below). Since then, the indices have been experiencing seesaw dynamics. The new market conditions, including the news about the pandemic have severly impacted all indices since December 2021 into January 2022. As expected, the indices do not exactly follow the same trends and projections, neither in training nor in test data (see DJI and NASDAQ examples below).
Figure 3: Dow Jones (DJI) Step Estimate Sep 2022 - Nov 2022
Figure 5: DJI Stock Market Index Trends and AroniSmart Projections Analysis Between April 2021 and November 2022
Figure 5 :DJI Stock Market Index Trends and AroniSmart Future Estimates Analysis Between November 18 2021 and August 2022
AroniSmartIntelligence™ modelling shows the stock indices that appear to mirror each other: a high opening for the stock market indices that tends to lead a decline or slow down in NASDAQ's adjusted closing price and a high opening for the stock market indices that tends to lead an increase or growth in NASDAQ's adjusted closing price. Late Q4 2020 - Early Q1 2020 and late Q2- early Q3 dynamics appear to positively impact NASDAQ Index, whereas the end of Q3-early Q4 2021 appears to have been challenging.
AroniSmartIntelligence™ analysis, using Time Series Support Vector Machine modelling and Neural Network Multilayer Perceptron, below, shows the weights of the different indices and the forecast statistics. From the statistics, directionary accuracy is in general high, pointing to overall similar dynamics across all market indices.
AroniSmartLytics™ Neural Network Analysis confirms Time Series Support Vector Machine results: NASDAQ and DJI momentum negatively impacted in late Q1 2022 - early Q2 2022, and late Q3 2022, generally aligned with the momentum of most of other stock market indices.
AroniSmart™ team analyzed DJI's performance dynamics using Neural Network Analysis capabilities of AroniSmartIntelligence™ and uncovered insights confirming the performance dynamics of DJI vs other market indices from November 2021 to November 2022.
See below:
Figure 6-a: DJI Stock Index Dynamics - AroniSmart Neural Network Analysis Results - Model setup and network for the Period Between November 2021 and November 2022
Figure 6-b: DJI Stock Index Dynamics - AroniSmart Neural Network Analysis Results - Weights for the Period Between November 2021 and November 2022
AroniSmartLytics™ Dominance Analysis confirms Support Vector Machine results: Stock Indices momentum impacted in 2021 and generally aligned with the momentum of most of other stocks.
AroniSmart™ team analyzed DJI performance dynamics using Dominance Analysis capabilities of AroniSmartIntelligence™ and uncovered insights confirming the performance dynamics among all the stock market indices, especially DJI vs SP500, NASDAQ, Oil and Gold from November 2021 to November 2022. See below:
More detailed analyses can be conducted using AroniSmartIntelligence™ Big Data, Machine Learning, Time Series and Sentiment Analysis capabilities.
For more on AroniSmartIntelligence and AroniSmartInvest capabilities, visit AroniSoft web site by clicking here. AroniSmartInvest™ and AroniSmartIntelligence ™ are available on Apple's App Store.
©2022 AroniSoft LLC
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