- Despite short-term uncertainty, investors must keep an eye on major market trend changes and adjust portfolios accordingly
- Arm's Nasdaq debut last week, which marks the largest IPO in the US in nearly two years, can certainly be on of such events
- The performance of high-yield bonds and their relationship with the S&P 500 indicate a notable resistance level affecting market trends
Market forecasting can be highly imprecise. Nevertheless, examining past events enables us to filter out the present moment's noise and concentrate on the broader movements of the market.
For long-term investors, sticking to one's established path is commendable, but it is equally rational to "adjust" as we progress if we encounter conflicting signals.
The challenge, naturally, lies in detecting these signals promptly. As an illustration, Yardeni compiled historical earnings and alteration projections for each year. It's fascinating to observe how analysts' anticipations are off by an average of 30%.
Source: Yardeni Research
Last week brought a noteworthy development to the U.S. market—a major IPO, the first in nearly two years.
Arm Holdings (NASDAQ:ARM), the chipmaker giant, amassed an impressive $4.87 billion in funds. Owned predominantly by SoftBank (TYO:9984) Group (OTC:SFTBY), Arm Holdings issued 96 million shares at $51 each, resulting in a substantial valuation of approximately $54.5 billion.
Notably, Arm Holdings had formerly been listed on both the London Stock Exchange and Nasdaq (from 1998 to 2016) before SoftBank's acquisition for $32 billion. In 2020, SoftBank attempted to sell Arm Holdings to NVIDIA (NASDAQ:NVDA), but regulatory hurdles prevented the deal from materializing.
In financial terms, Arm Holdings reported revenues of $2.68 billion for the fiscal year ending on March 31, 2023, consolidating its position as one of the United Kingdom's leading tech companies. Although there was a slight decline in net income compared to the previous year—$549 million in 2022 versus $524 million in 2023.
Yet, from a broader perspective, the most important factor is that Arm's Nasdaq debut event carries significant weight, as it signals a resurgence in IPO activity within the U.S. market, boding well for the broader market in the medium term.
Source: TopDownCharts
As depicted in the chart above, whenever this pattern of deceleration occurs (approaching the lows), it typically coincides with a decline in the S&P 500, and conversely.
At present, the S&P 500 finds itself in a range between 4600 and 4300, resulting in a sideways price movement. This situation has led to a modestly positive monthly performance of +1.8%.
Examining the historical iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) Vs. iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) relationship — and then comparing it with the S&P 500, we can discern that this notable resistance to trend continuation is evident and persistent.
Presently, we have transitioned from a period of uncertainty to a bullish signal with the breakthrough of the resistance level at 0.65 on the ratio. This ratio features high-yield bonds in the numerator and has recently marked new one-year highs.
Confirming the bullish outlook will depend on the spread itself, which needs to demonstrate the strength to surpass the 0.66 level, favoring the relationship between high yields and high risk. This, in turn, could lead to new highs in equities.
Conversely, as indicated by the spread on the chart, failure to breach these levels hints at potential declines and the possibility of new lows looming on the horizon.
At present, the anticipated shift toward defensive investments has yet to materialize, and it may require more time to develop fully.
Returning to IPOs, 2023 also witnessed the largest European IPO in the renewable energy sector, courtesy of Hidroelectrica. This move instantly elevated Hidroelectrica to the position of the largest publicly listed company in Romania, boasting a valuation exceeding $10 billion. The offering outpaced previous records, including Lottomatica Group SpA, and approached the all-time high for Eastern European shares held by Allegro.eu.
Hidroelectrica experienced a significant surge in revenue last year, primarily driven by Russia's invasion of Ukraine, which led to elevated energy prices. Net income increased by approximately 45 percent year-on-year, with first-quarter profits rising by 34 percent.
In fact, energy and commodity stocks continue to command attention. Since June 2023, crude oil has shown a remarkable performance, surging by +30%, while diesel has soared by +37%.
Regarding Hidroelectrica, its remarkable profitability and dividend policy, which involves returning 90 percent of profits to shareholders, may further enhance the stock's appeal.
Markets are in constant flux, propelled by factors such as fear, greed, and breaking news. In the upcoming weeks (or months), it will be crucial to decipher market psychology, which is reflected in prices and volatility. This can be accomplished through the application of technical analysis techniques.
Make sure to sign up for a free week of InvestingPro now! 
***
Disclosure: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.