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 the first Wednesday 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.
If you lose your bookmark to the blog, google “Rich Investing Blog” and it should show up on the first page or so.
Economy:
It was a quiet week for economic statistics. Initial jobless claims for the prior week were 231K, which is higher than the recent trend closer to 210K. Anything under 250K is normal, but lets keep an eye on this and see it it continues elevated. Interest rates backed down from their recent peak in hopes that a weaker job market would motivate the Fed to ease rates sooner, but one data point does not make a rate cut.
Geo-Political:
The Middle East was quiet but I suspect it will heat up again.
Mildly good news from England:
“May 9, 2024 – The economy grew by 0.6% between January and March, the fastest rate for two years, official figures showed.
The UK fell into recession at the end of last year after shrinking for two three-month periods in a row.
Prime Minister Rishi Sunak said the economy had “turned a corner”, but Labour said this was no time for a “victory lap”.
On Thursday, the governor of the Bank of England, Andrew Bailey, told the BBC that the UK was seeing a recovery, although it was not a strong one.
Interest rates are currently at their highest for 16 years, meaning people are paying more to borrow money for things such as mortgages and loans, but savers have also received better returns.
Mortgage rates have been creeping up in recent weeks, after forecasts for when the Bank of England would cut borrowing costs were pushed back.
On Thursday, the Bank said that inflation, which measures the rate prices rise at, would fall close to its target level in the next couple of months. That had boosted expectations of a rate cut in June. However, the stronger than expected growth figures have dampened those expectations.
Ruth Gregory, deputy chief UK economist at Capital Economics, said it showed “the Bank of England doesn’t need to rush to cut interest rates”.
She said the first rate cut would ultimately be determined by upcoming employment and inflation figures.”
When the economy of our trading partners do well, it helps the US economy because they will buy more from the US.
China’s President Xi Jinping was in Europe last week. European leaders are concerned about China dumping subsidized EV’s on their market, and they are opposed to China selling dual use goods to Russia that can be used in the war on Ukraine. Both concerns appeared to fall on deaf ears.
“May 10, 2024 – Xi’s main aim with the visit, analysts say, was pushing for a world where the United States is less dominant, and controlling damage to China’s ties with the European Union as trade tensions grow amid a threat of European tariffs and a probe into Chinese subsidies for electric vehicles that officials say are hurting local industries.
Throughout Xi’s two-day trip to France, Macron pressed the Chinese leader to address Beijing’s trade imbalances with the EU – with the bloc running a goods trade deficit of 292 billion euros ($314.72bn) last year – and to use his influence on Russian President Vladimir Putin to end the war in Ukraine.
Macron invited European Commission President Ursula von der Leyen to join his talks with Xi, to underline European unity on calls for greater access to the Chinese market and to address the bloc’s complaints regarding its excess capacity in electric vehicles and green technology. The pair also pushed Xi to control the sales of products and technologies to Russia that can be used for both civilian and military purposes.
But the Chinese leader appeared to have offered few concessions.
Xi denied there was a Chinese “overcapacity problem” and only reiterated his calls for negotiations to end the war between Russia and Ukraine. Xi, who is expected to host Putin in China later this month, said he called on all parties to restart contact and dialogue.
“Both trade and Russia are non-negotiable for China. Macron could not achieve anything [on those fronts],” said Shirley Yu, political economist and senior fellow at the London School of Economics in the United Kingdom.
But she suggested the visit furthered Macron’s personal relationship with Xi, one that is part of the French leader’s strategy to make France a crucial partner to all emerging world powers.
“Macron shares one vision in common with Xi, which is that the US hegemony – including the quest for Europe’s allegiance to the US’s foreign policy – must yield to a multipolar global order by accommodating the rising powers’ interests and concerns,” Yu told Al Jazeera. Macron’s recent visits to India and Brazil also “prove that France wants to stay at the forefront of that global shift,” she added.
I continue to be unimpressed with the Chinese president. Time after time when people engage with him, he wants to get something from them, but he declines to engage on their issues. This seems to lead to nothing getting done.
The article above suggests that Europe is tiring of simply following the US lead on foreign policy issues. Right, wrong or indifferent, things are changing. It is better to be aware of what is going on.
You may wonder why I used Al Jazeera as a source, but after reading articles from Europe and the US, I thought they had the best coverage.
Technical Analysis:
For the week ending 5/10/2024, the S&P 500 was up abouts 2%.
Technically (see chart below) the market looks positive. RSI at the top of the chart is neutral at 62 and rising. Momentum shown by MACD at the bottom of the chart is positive and rising. The price action is positive.
So, everything is OK, right? Not so fast my friend! The all-time high on the S&P was just back in March at 5250 and that is now resistance. We may bust through it and go on to new highs, or we could fail at the resistance and resume the correction downward. Earnings reports for Q1 have been good, but in a few important cases, guidance for Q2 has been light. Some retailers report that consumers are rejecting high prices. Starbucks reports some weakness, and McDonalds as well. McDonalds is bringing back a value meal. The market is still richly valued on a PE basis, and after the strong rise off the October low, it seems that just a 5% correction might not be enough. I’m cautious, unless we definitively break above the old record high.
It’s funny, but the higher initial jobless claims and reports of consumers balking at higher prices increase the odds that the Fed may cut rates so the economy does not slow too much. They don’t want to provoke a recession. So, “bad news is good news”, because it increases the likelihood of a Fed rate cut, and the stock market wants a easing Fed. So right now, the stock market is going up on news of economic weakness.
Click THIS LINK to open the chart in a separate window.
What am I doing? I took a few profits on stocks I bought near the April lows. I bought them for trades thinking we would rally, then possibly correct some more. The stocks I sold might go higher, but there’s an old saying, “I never knew a man that went broke taking a profit”.
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If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.
I would like to call your attention to a page of my blog called “CLASSICS”. It is located at the top of the blog, on the banner just under the title. The banner has links to “Home”, “About”, and now “Classics”. These are articles that I wrote one time for the blog, but they are valuable insights at all times for investors. I will announce in the weekly blog when I add a new classic.
There are currently 3 Classic topics posted:
- Is it a bull market or a bear market?
- Why does healthcare cost so much?
- Implications of a large national debt. (posted August 2022)
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.
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. 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.
I am a retired person and preserving capital and seeking income are important objectives for me. I also want a growth component to my portfolio, while minimizing major risk. My style of investing will not suit everyone. I like to sleep well at night. Investing involves risk, including the risk of loss.
Rich Comeau, Rich Investing
Rich Investing 