I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). 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 primary bear market, 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.
Existing-home sales occurred at a 5.38 million seasonally-adjusted annual pace, down from a better-than-expected 5.50 million in August, while sales were 3.9% better than the prior year’s September. New home sales decreased 0.7% on a monthly basis in September to a seasonally-adjusted annual rate of 701,000. The monthly average of new jobless claims dipped by 750 to 215,000, a low overall number. Orders for durable goods dropped 1.1% last month, the first dip in the last 3 months. The U. of Michigan index of consumer sentiment was revised down to 95.5 in October from an initial reading of 96; the index peaked at 101 in 2018.
Housing is strong after being spurred by the Fed’s interest rate cuts and good consumer sentiment. Weakness in durable goods orders shows weakness in manufacturing and that business is hesitant to proceed with investment in the uncertain trade war environment. It’s a mixed picture.
Today we look at the overall global economic picture in the brief article below that does a good job capturing the big picture. It’s OK, but not inspiring.
October 15, 2019 – The World Economy: Synchronized Slowdown, Precarious Outlook
The global economy is in a synchronized slowdown and we are, once again, downgrading growth for 2019 to 3 percent, its slowest pace since the global financial crisis. Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions. We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and by structural forces, such as low productivity growth and aging demographics in advanced economies.
In the October World Economic Outlook, we are projecting a modest improvement in global growth to 3.4 percent in 2020, another downward revision of 0.2 percent from our April projections. However, unlike the synchronized slowdown, this recovery is not broad-based and remains precarious.
The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods. In addition, the automobile industry is contracting owing also to a variety of factors, such as disruptions from new emission standards in the euro area and China that have had durable effects. Overall, trade volume growth in the first half of 2019 has fallen to 1 percent, the weakest level since 2012.
The stock market was up a half percent for the week, good, but not real good considering we are in the middle of earnings season.
Technically the condition of the market has improved over the last couple of weeks. RSI at the top of the chart is high-neutral at 60 and rising. Momentum shown by MACD at the bottom of the chart is rising, a short term positive. The price action is positive after several weeks of small gains. A key technical factor will be whether the S&P which is sitting right on a new all-time high, can push up above it and break out above the Aug. / Sept. double top. My guess is yes it can. Then the question will be how much higher it can push, and recent history, the last 2 years, shows that the market has not pushed much higher before falling back in correction. That is what I expect to happen again.
I don’t like this market enough to be highly bullish. The analysts have set the bar of expected earnings so low (based on what the companies tell them they are likely to do, I don’t have much faith in the analysts) that 80% of companies are “beating the estimates”, lowered though they may be. Then the talking heads on TV just talk about each company “beating estimates” and make that sound good. They don’t mention the fact that overall, the S&P is projected to have earnings 4% below last year, which is not good. (This is my quarterly rant on this topic)
A few companies are doing very well, growing revenue and profits, and those have done so well they can carry the whole S&P 500, and you know them, they are the FANG stocks (Facebook, Amazon, Netflix, and Google). Netflix has hit trouble with competition entering the space, and their stock is down. Of course there are others as well, but a relatively small set of stocks is accounting for a large percent of the rise in the S&P.
The news items that have been driving the markets are China and interest rates. The Fed will meet next week and the market thinks they will cut by another ¼%. What if they pulled an upset and paused? The China trade mini-deal is a weenie by any standard. The market is taking this as something significant, like a “change in direction of the negotiations” from degeneration to improvement. It is unknown even if a deal will be signed (I think it will), and if it is signed it is unknown if it really is a change in the direction of the talks, or China just taking what they can get now as a temporary help for themselves, even though they know they won’t give on the serious issue of IP protection. I don’t know, but I don’t think the TV heads know either, remember they have to fill up 24 hours a day, seven days a week, 365 days a year, so they speculate so they can talk. At this point it is just speculation.
What am I doing? I’ve been cautiously buying. The market has been in neutral mode, RSI is not overbought, and the talking heads talk a lot more about the beats than the misses. The market has been rising slowly in the ongoing earnings season, where most stocks are beating estimates. It’s about time to stop buying if you are not watching your stocks closely, and start thinking about when to take profits. I will wait until we get closer to the end of earnings season. But, the Fed failing to provide the interest rate cut, or failure to sign the China trade deal, would be a negative for the market.
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You can use the 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. To do this 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. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.
Rich Comeau, Rich Investing