In The Know - January 2020
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill
Market Condition: The bull market continues, the equity market is in a confirmed uptrend. The S&P 500, the Nasdaq composite, and the Dow Jones Industrial indexes continue to trend in an upward fashion along their respective 10 and 20-day moving averages as they sit near all time highs. The Russell 2000 small cap index which lagged most of the year is also trending upwardly along its 10 and 20-day moving averages. Distribution days (high volume institutional selling days) on the general indexes are at a bare minimum which indicates a lack of institutional selling. The importance here is that institutional buying and selling is what controls the price action in markets. Last Friday the markets got hit with scary news regarding war escalation in the Mideast, we opened the day with a morning price gap down, and more bad news followed as the ISM Manufacturing survey showed contraction for a fourth month in a row. However the market quickly recovered off of the lows maintaining its uptrend. The market was given every excuse to implode but did not, indicating unusual strength at this time.
Note for 2020: As we start the New Year, being human everyone wants to know what the New Year holds for the markets, and of course there is no shortage of opinions. Every financial publication and institution has issued various prognostications. The only opinion that matters when it comes to investing is the market's opinion, because markets set asset prices. The truth is NO ONE knows where the market is going to go, nor do you need to know, but you do need to know what to look for as the year unfolds. While anything is possible in markets, at this time probabilities point to a continued uptrend, and it is my impression that the crowd may be underestimating the potential stock market upside. As the year unfolds we will continue to monitor technical, fundamental, and psychological factors that influence stock market behavior. Stay Tuned!
Forward impressions: We anticipate the economy keeps growing, making the most of lower tax rates and less regulations. We have a strong labor market, accelerating wage growth, strong consumer purchasing power and deleveraged household debt. M2 the measure of money supply in the economy has accelerated this year as well. We have a very accommodative Fed with loose monetary policy. Technology has changed the world for us. We went from "Peak Oil" to being a net exporter of petroleum, gene editing is being used to fight diseases, and you can do more work on a smart phone than you were able to do on your desktop. The Economic Freedom of the World (EFW) report shows that economic freedom has increase substantially in the world over the last 25 years. The EFW shows there is a deep continued link between economic freedom and important indicators of human wellbeing, including; wealth, poverty alleviation, life expectancy, inequality, infant mortality and happiness. It is clear that the poorest in society continue to benefit the most from secure property rights, loosened regulatory barriers, and greater trade liberalization. As long as policymakers around the globe keep this in mind we can move toward greater freedom. For now these positive events are reflected in stock markets around the world.
“We can complain because rose bushes have thorns, or rejoice because thorn bushes have roses.” ― Abraham Lincoln