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.
If you lose your bookmark to the blog, google “Rich Investing” and it should show up on the first page or so. The more often you google it and hit the link, the higher it will show in your results.
I recently added a feature to the blog, a hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text so he can look at the chart while reading the text. For this to work out best, in Firefox you can open a “private window” from the browser menu and have two instances of Firefox up. Then size each window to about half of your monitor size. As an additional benefit, if you bookmark the link you can look at it each day of the week to see how the market is progressing to certain milestones. If you trade, this will get useful information to you sooner.
New-home sales ran at a seasonally adjusted annual 689,000 rate in May, beating the MarketWatch consensus of a 668,000 selling pace. Orders for durable goods fell 0.6% in May following a revised 1% decline in April (hmmm). Initial jobless claims climbed by 9,000 to 227,000 in the week ended June 23. That exceeded the 220,000 estimate of economists polled by MarketWatch, but claims are still near the lowest level in half a century. The growth in the U.S. GDP in the first quarter was trimmed to 2% from 2.2%, largely reflecting lower spending on health care and a somewhat smaller buildup in inventories. The CPI rate of inflation over the past 12 months rose to 2.3%, the fastest pace since March 2012. The core inflation rate hit 2%, the Fed’s long-run target, for the first time since April 2012. The final reading of the University of Michigan’s consumer-sentiment index in June was 98.2, slightly above May’s level of 98.
The economy looks good, with the exception of the small two month decline in durable goods orders.
The US stock market was buoyed in 2017 by improvement in economies around the world, “synchronized global recovery” from the financial crisis. However that is coming into question now.
“May 15, 2018 – Economic growth slowed across Europe at the start of the year, with Germany seeing its pace of expansion cut in half amid weaker trade.
The 0.3 percent increase in Europe’s largest economy was softer than forecast and the weakest in more than a year. Dutch and Portuguese growth also cooled more than expected in the first quarter, while a similar trend was seen across central and eastern Europe.
A deceleration in euro-area momentum to 0.4 percent was confirmed, while investors’ expectations for the outlook remained close to the lowest since 2016. That raises the question for the European Central Bank whether this is merely a soft patch or indicative of something more alarming.”
From Japan, another large trading partner:
“May 15, 2018 – The Japanese economy shrank by 0.2 percent in the first three months of 2018, snapping a run of two years of positive growth, according to data released by the Cabinet Office on Wednesday.
Business investment contracted by 0.1 percent on a quarter-to-quarter basis, and household spending — the largest driver of economic growth — remained flat, demonstrating the weak overall appetite for consumers to open up their wallets in a still-uncertain economy. When annualized, GDP was 0.6 percent lower than the previous quarter.
However, the latest preliminary numbers, often prone to statistical revision, may actually belie a relatively healthy economy on pace for modest growth in 2018, economists said.”
I don’t know how the trade war scenario will play out, but seeing how Trump has failed to anticipate how other initiatives would proceed, like the separation of children from their parents at our border from which he rapidly backed off, it does not inspire confidence that he can manage a trade war.
The US has the most powerful economy in the world. Mr. Trump likes to wield power. What he may not realize is that while we can hurt other nation’s economy with the stated intent of helping ours, we could weaken our trading partners to the extent that they don’t have jobs or income to buy our goods. In the long run, being too greedy can come back and hurt us. This is the reason the US has spent decades helping other countries develop.
The global synchronized recovery thesis is falling apart and that is a reason for the volatility in our stock market. Clearly there are other reasons as well, such is rising interest rates.
The stock market ended the week down, mostly on trade war concerns.
Technically, RSI at the top of the chart ended in the low end of moderate territory at 43. One usually does better to enter the market close to oversold at 30, but nothing says the market has to go to totally oversold. MACD at the bottom of the chart is headed down, which has been negative for a few weeks, but the histograms are shrinking ever so slightly and a turn up could be coming. Price-wise, we are sitting on the 50-day moving average (squiggly blue line), and the lower end of the up channel the market has traced over the last year (pair of uptrending blue lines). Both the 50-day and bottom of the up channel can provide support to the market.
Technically we could be set up for a change of direction to an upswing.
Earnings season is upon us and earnings are expected to be good, up approximately 18% year over year. It appears that the market is discounting the huge jump in earnings since it is due to a government action (tax cut) and NOT due to any improvement in the economy.
I was a buyer last week on weakness (buy low), and moved a moderate amount into the market, about 25%. I picked up a tiny piece of GLD on the theory that import tariffs will lead to inflation and gold does well in inflationary times (I expect this is a long term position, maybe two or three years). I bought some SPY and IWM. IWM is the Russel 2000 small cap index and these small companies tend to be US domestic focused and less impacted by tariffs.
If earnings season moves the market up, I would continue to buy as long as it is going up, then be ready to sell as earnings season tails off, if the market goes to overbought with RSI up around 70. That’s my plan, but the market seldom goes according to my plan. I’ll also watch and change plan if warranted.
If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.
Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post, or send me an email, my address is on the “About” page at the top of the blog.
Rich Comeau, Rich Investing