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:
Existing home sales for April inched down to 4.1 million units annualized, from 4.2, while new home sales also inched down to 634K units annualized from 665K. That is not good news as we are in the spring season which is usually strong. High interest rates and high home prices are not a good combination for buyers. The real estate sector is important to the US economy and this is part of the slow down. We see the stock of Home Depot is weak. It all hangs together. On the other hand, this is exactly what the Fed wants to see when they go on an extended period of rate hikes like over the past two years. This slowdown is how you bring inflation down.
Durable goods orders for April were up .7%, that’s good.
This looks like a soft landing to me, so far.
Geo-Political:
I report a lot about China, but they are our top trading partner, about equal with all of the EU trade we do. With the US in a trade war with China, developments with them loom larger.
“04/21/2024 – As the Chinese accumulate more and more gold, they’re dumping U.S. Treasuries.
That raises an important question: who is going to keep funding the federal government’s borrowing spree?
China offloaded another $22.7 billion in U.S. Treasuries in February, according to the latest data from the Federal Reserve. That dropped its total holdings to $775 billion.
China still ranks as the second-largest foreign holder of U.S. debt, but the U.K. could soon overtake China and slide into the second position if the current trend continues.
Japan ranks as the biggest foreign U.S. creditor with $1.17 trillion in Treasuries. The U.K. comes in third with $700.8 billion in U.S. Treasuries.
China has been divesting itself of U.S. debt for several years. The country’s Treasury holdings have fallen to their current level from around $1.1 trillion in 2021. Chinese investment in U.S. debt hit a 14-year low in October.
Renmin University finance professor Zhao Xijun told the South China Morning Post that the selloff will likely continue.
“China’s overseas investment has been concentrated on U.S. Treasuries in the past, [but] there is space for the Chinese government to further cut back its holdings in the future.
China is intentionally minimizing its exposure to the dollar. Chinese policymakers have seen how the U.S. uses the dollar as a foreign policy weapon. Last month, Janet Yellen floated the idea of seizing Russia’s frozen dollar-denominated assets and giving them to Ukraine.
The Chinese aren’t dumb. They realize the U.S. could put the same kind of squeeze on them. So, if you recognize something makes you vulnerable, what do you do?
You minimize the vulnerability.
In other words, if you are concerned that the U.S. could pull the “dollar rug” out from under you, why not pull out from the dollar system first?
This seems to be China’s strategy.
Meanwhile, the Chinese are stockpiling gold, a reserve asset that carries no counterparty risk at all.
The People’s Bank of China has added gold to its reserves for 16 straight months, adding over 300 tons of gold to its stash since it resumed reporting gold purchases in October 2022.”
https://www.fxstreet.com/analysis/china-is-dumping-us-treasuries-and-buying-gold-202404212302
Going all the way back to Ronald Reagan who opened trade with China, the plan was to improve their economy and HOPE that they would buy in to western standards of international business, and that would lead to democratic political reforms. China welcomed the development of their economy, and at times appeared to enact capitalistic economic reforms, but less than the US hoped for. For US companies to do business in China, they had to have a Chinese partner. It was not a free market. Xi Jinping has backed off of previous reforms, clamping down on some of their most important companies like Alibaba, and silencing its CEO, Jack Ma. China has been building up its military for decades and threatens Taiwan and shipping in the South China Sea. President Trump began the trade war with China, and he seemed to expect to win concessions from China quickly, which has not happened. President Biden has continued the trade sanctions and ramped them up higher, denying China access to the most powerful computer chips, which could find their way into military weapon systems. So, here we are. China retaliates economically. If a large buyer of US debt pulls out of the market, others must buy the debt. If they feel US fiscal policy is irresponsible (i.e. the annual deficit is too high), they will demand a higher interest rate to compensate them for the higher currency risk of the US dollar falling in value. The Fed cannot control that. That could pose a big risk to the US economy if bond buyers push up yields on US debt, as that will reduce funds available for investment in the economy by businesses if they have to pay more for loans.
Technical Analysis:
For the week ending 5/24/2024, the S&P 500 was unchanged.
Technically (see chart below) the market looks fair. RSI at the top of the chart is neutral at 63, but dropping. Momentum shown by MACD at the bottom of the chart is neutral, moving sideways, but the histograms are shrinking and it is in danger of rolling over. The price action is neutral.
We had a powerful rise in the market from the Oct. low to the March high, followed by a 5% correction in April. We rallied back in May to a new high. I still wonder if we might need more corrective action to the downside?
Click THIS LINK to open the chart in a separate window.
What am I doing? I was selling into strength last week. I sold CRWD and MRNA because they had run up too far too fast and they are overbought. MRNA is up on a POSSIBLE bird flu problem this summer and a new Covid strain but nobody knows how much it will spread. MRNA is also working on a cancer therapy, but it is over a year off. I sold some SPY. All of those could continue higher but the chart indicates most of the rise has occurred for the near term.
———————–
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. 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 