I update each Saturday with my view of the stock market for the next few weeks. The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
Existing home sales fell 1.8 percent in June to a lower-than-expected annualized rate of 5.520 million. Year-on-year, sales are still in the plus column but not by much, at 0.7 percent which is the lowest reading since February. New home sales are steady near the best levels of the expansion, at a 610,000 annualized rate in June. Crude oil inventories fell sharply by 7.2 million barrels in the July 21 week to 483.4 million. Total durable goods orders surged 6.5 percent, but when excluding transportation equipment that includes a 131 percent surge in civilian aircraft, orders could manage only a 0.2 percent gain. The outsized 14,000 decline in initial jobless claims last week is reversed by an outsized 10,000 rise in the July 22 week, at 244,000. The second quarter GDP (first estimate) was healthy, growing at an as-expected 2.6 percent annualized rate. Consumer sentiment edged higher the last two weeks of this month, producing a final reading of 93.4 vs 93.1 at mid-month, but the result is noticeably lower from June’s 95.1.
On balance, the numbers are good, but not great. I like the drop in crude oil inventory because it will help stabilize activity in the oil patch. Yes, oil is up at $49 a barrel, and prices at the pump will rise a bit, but I’d rather see stability in the sector than boom/bust, with layoffs and bankruptcies.
N Korea launched another ballistic missile so that tension will percolate back up.
China is looking good, and that is important to the global economy:
BEIJING — A 6.9-percent growth rate in the first half of this year shows once again that China remains the main stabilizer of the global economy.
The Chinese economy has maintained steady and sound growth, according to latest figures released by the National Bureau of Statistics. International institutions believe China’s efforts to effect progressive economic rebalancing bring bright prospects for its economy.
The International Monetary Fund (IMF) has hence recently revised up its annual growth for China, up 0.1 and 0.2 percentage points respectively to 6.7 percent this year and 6.4 percent next year.
Both JP Morgan and Nomura revised China’s 2017 growth up to 6.8 percent from 6.7 percent.
JP Morgan believes the expanding consumption and services industries as well as increasing private investment in China will boost growth despite slowing investment in infrastructure and real estate in the second half of the year on top of a financial deleveraging.
China is expected to continue playing a stabilizing role for the global economy, with fewer concerns of an economic hard landing and financial risks in the country compared to a year ago, it said.”
China continues to transition their economy from government funded infrastructure spending to a consumer funded consumption economy. There was concern a year ago that economic activity in China was slowing too much and that the economy could stall, but the government stepped in with easy monetary policy and they seem to be negotiating a soft landing. That’s good news for the rest of the world, as the Chinese economy is such a large part of the global economy, with the US and Europe.
The market was down for the week on a minor pullback from its recent record high. I’m concerned about a bigger pullback out there, so let me explain why. We are in earnings season, and it is going well; with 57% of the S&P reporting, 73% have beat their earnings estimate and earnings are projected to grow 9%. Now the bad news; in the face of such good news, the market it barely able to push ahead. What’s going to happen when earnings season ends in a couple of weeks and the good profit news is no longer rolling in? August and Sept. are historically the weak months of the year for the stock market. Washington is a mess and more fights loom on the debt ceiling and the budget.
Technically, the market looks tired. RSI (upper right) peaked at 68 and is falling back to 62. MACD at the lower right looks like it will roll over and begin falling; the histograms have been shrinking showing weakness. The price action does not show signs of breaking out above the top of the channel it has been in the last few months (2 black lines on the right). We’ve just had our first down week in a while.
I lightened up 10 days ago, and didn’t miss anything last week. If the market can’t advance on good news (earnings), what is going to happen when the good news stops for a while? We’re late in the bull market cycle, in a overvalued market. Longer term, it is still a bull market and I plan to buy the next dip.
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Rich Comeau, Rich Investing