2023 has been an eventful year for the markets. The Dow Jones Industrial Average (DJIA) remains near all-time highs as investors continue to speculate on the future course of the global economy. Despite this, there has been a corresponding decline in certain key market-breadth indicators, which has led some to question the future outlook for the markets. In this article, we take a look at the top five market-breadth indicators for 2023, highlighting their importance and discussing the implications for investors.
The first market-breadth indicator to consider is the ratio of advancing stocks to declining stocks on the New York Stock Exchange (NYSE). This ratio measures investor sentiment on a given day and gives investors a quick snapshot of how investors feel about the direction of the market. A relatively high ratio indicates strong investor sentiment while a relatively low ratio can suggest significant investor caution. The NYSE advancing stocks off-decliners ratio has been trending downwards since the beginning of 2021, and for 2023 it currently sits at 2.9, the lowest level in five years.
The second market-breadth indicator to consider is the percentage of S&P 500 stocks trading above their 200-day moving average. This metric is a useful tool for spotting potential long-term trends, such as uptrends or downtrends in the market. Currently, only 45% of S&P 500 stocks are trading above their 200-day moving average, down from nearly 81% in early 2021. This decline suggests that investors are losing confidence in the markets in the medium-term, and raises the question of whether a bearish trend could emerge in the near-term.
Third on the list of market-breadth indicators to watch in 2023 is the ratio of stocks listed on the NYSE that are trading at a new 52-week high. This ratio is a useful measure of the overall health of the markets, as investors tend to be more bullish when a large proportion of stocks are trading at all-time highs. For 2023, the 52-week high ratio sits at 37.1%, down significantly from 66.3% in early 2021. The long-term outlook for the markets could be affected by this decline if it persists over the coming months.
The fourth market-breadth indicator to consider is the advance-decline line. This metric measures the difference between the number of stocks that are advancing versus those that are declining over a given period of time. This ratio stands at -3.3 for 2023, which suggests that the number of stocks that are declining is outpacing the number that are rising. This could spell trouble for the overall market in the near-term and highlights the importance of taking a cautious approach to investing.
The fifth and final market-breadth indicator to watch for 2023 is the Dow Jones Industrial Average (DJIA) itself. The benchmark index has been on a tear over the past few months, setting multiple new all-time highs in the process. This rally has been propelled in part by stronger-than-expected economic data and a surge in risk appetite among investors. Though the upward trend appears to be losing steam, any further declines could signal trouble ahead for investors.
In conclusion, the top five market-breadth indicators for 2023 provide investors with a useful snapshot of the short-term and long-term outlook for the markets. The NYSE advancing stocks off-decliners ratio, percentage of S&P 500 stocks trading above their 200-day moving average, 52-week high ratio, advance-decline line, and the DJIA itself can all provide valuable insights for investors looking for clues on where the markets may be headed in the near future. However, it is important to note that these metrics should only be used as part of a broader investing strategy.
