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.
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Weakness in the South pulled down new home sales in August as it did in last week’s existing home sales report. New home sales fell sharply in the month to a 560,000 annualized rate vs an upward revised rate of 580,000 in July and a downward revised 614,000 in June. Weakness in the hurricane states of Texas and Florida pulled down consumer confidence to 119.8 in September, a level however that is still unusually strong. A second straight jump in capital goods leads what is a mostly very strong durable goods report where the August headline rose 1.7 percent. Second-quarter GDP proved strong, at an as-expected 3.1 percent annualized rate for the third estimate driven by consumer spending at a 3.3 percent rate. Hurricane effects are apparent in weekly jobless claims data but are far from overwhelming. Initial jobless claims rose 12,000 in the September 23 week to a 272,000 level. Corporate profits, at an annualized rate of $1.77 trillion in the second estimate for the second quarter, rose 7.4 percent compared to second-quarter 2016. Consumer sentiment ends this month about where it was at mid-month, at 95.1 for September which is strong but still down a sizable 1.7 points from August. Hurricane effects are likely behind the easing as respondents in Florida and Texas reported doubts about their financial situation.
This is all good considering the effect that the hurricanes had.
I’ve reviewed Russia, China, European Union, and the US lately. Today let’s look at Italy.
Why look at Italy? Germany and France are the big guns in the EU and they have led the recovery in Europe. You expect the weaker economies to lag, but eventually they need to recover. At this point, the fact that the weaker economies are doing well really tells us more good news than hearing Germany is doing well. Germany is supposed to be doing well and that is not new news. Positive movement in Italy really is good news for the EU.
“September 26, 2017 – Italy’s economy seems to have gathered pace on the back of the broader recovery in the EU. Recently released data for Q2 shows that the economy posted a third consecutive 0.4% quarter-on-quarter expansion, underpinned by resilient household spending and a rebound in fixed investment, which is benefiting from lower corporate taxes. Data for the first two months of Q3 suggests the economy has broadly maintained its pace of growth. Both business and consumer confidence improved in August, and manufacturing PMI recorded its strongest reading in over six years on higher orders and output. The improved economic performance is benefiting the still-troubled Italian banking system, which saw its stock of bad debt falling in July to the lowest level since 2014. That said, growth remains weak compared to other Eurozone countries, and the economy continues to suffer from stagnant productivity growth and a heavy tax burden, while public debt continued to rise in July.”
It was time to clean up the chart, so here it is.
We’re in a nice uptrend since the election. It’s been over a year since we’ve had a 10% correction so lots of folks are a bit concerned about that (me included), but when everyone is worried about it stocks tend not to get overbought too much. It is when people become complacent that things get overbought and then correct.
We had an ever so slight pullback of about 1% and then the market moved higher and set a new all-time high on the S&P. I have not jumped in whole hog, but I was buying on Thur. and Friday, XLF (financials ETF) and XLK (technology ETF) (ETF is defined in the glossary, check it out). I think with a new record high, sentiment will be positive and that may carry us through to earnings season which starts around Oct. 10. Earnings for the S&P are expected to be up 4.5%, and the weak dollar will be a tailwind. The two hurricanes may dampen some activity, but I think the market will give stocks a pass if the guidance for Q4 is good. Interest rates on the long end have ticked up a bit, which favors the banks ability to improve their net interest margin (profits), and that is why I bought into XLF. I’ll probably add holdings like SPY next week.
I sold my XOM for a small profit and dividends. Oil has run up far and fast and I wonder how much farther it has to go? The Saudi’s are supporting the price in the low $50’s by cutting their production and that does not give me a lot of confidence about the near term future for XOM to extend to the upside. Two years ago the Saudis were flooding the market with crude to drive the price down and bankrupt the US small frackers, in order to get the price back up. That did not work. The larger companies bought the small weak ones, and the US can frack as many wells as ever. The Saudis clearly don’t know everything about the oil patch, or they took their action for some other reason that we don’t know about. But, the facts show the oil patch is a crazy market with price able to be manipulated by the big boys. Also, countries are moving to ban gasoline cars in the future. It’s a way off, but it is not good in the long run for the major oils:
“Sep. 11, 2017 – China is preparing to put the brakes on gasoline and diesel cars.
The country, home to the world’s largest auto market, is working on a plan to ban the production and sale of vehicles powered solely by fossil fuels, officials say.
The Chinese government is following in the footsteps of countries like India, France, Britain and Norway, which have already announced plans to ditch gas and diesel cars in favor of cleaner vehicles in the coming years.
Regulators haven’t decided yet when the Chinese ban would take effect, but work has begun on a timetable, according to China’s vice minister of industry, Xin Guobin.
He warned carmakers they need to adjust their strategies to the changing situation, according to state-run Chinese news agency Xinhua.”
I will probably buy some XOM in the future, but only from technically oversold levels.
Technically, the market is in overbought territory with the RSI (upper right of chart) at 69 (70 is overbought). I don’t like to enter the market when it is overbought, but the market just had a chance to go down after starting the 1% pullback, and it did not go down. Look at Feb. where the market stayed overbought for 3 weeks, hitting an RSI high of 80. MACD (lower part of chart) is interesting. After weakening for a weak, it has turned up and it never really gave a sell signal.
I started buying cautiously last week and plan to add more this week.
Seasonally, we are coming up on the better half of the year (usually, but not always, nothing is absolute), from Nov. 1 to May 1. The guidance for the next year is usually too rosy, but people usually buy into it.
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Rich Comeau, Rich Investing