In The Know - May 2019

Christopher Chiu |

"People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences.
Calamitous drops do not scare them out of the game."
- Peter Lynch

Market Condition: The equity market is in a confirmed uptrend. The S&P 500 and the Nasdaq composite indexes continue to trend along their respective 10 and 20-day moving averages as they sit near all time highs. Similar behavior can be observed in the Dow Jones Industrial index as well. The small cap Russell 2000 index has made a decisive move above its 50 and 200-day moving averages, an important index which was previously lagging. Strength in the market is broad based and advancers have consistently outpaced the decliners. Distribution days (selling days in heavier volume) are at a minimum. In fact the S&P 500 has not suffered any distribution weeks this year.

Recent Headlines: The "Wall of Worry" is alive and well, as investors digest headlines of more Washington fighting with attacks on Attorney General William Barr, China trade talks, and Fed Chairman Powell mentioning that low inflation is just transitory, hinting that - no rate cuts in sight. The financial press continues to tout that this bull market is old and tired, and of course everyone is hearing of the old adage "Sell in May and go Away."

The Economy: The economy continues to be strong. Nonfarm payrolls rose 263,000 in April, and are up 218,000 in per month in the past year, the unemployment rate fell to 3.6% the lowest since 1969, and average hourly earnings are up 3.2% in the past year. Nonfarm productivity rose 3.6% on the first quarter, the fastest pace since late 2014 and second best reading since 2009. The first estimate for Q1 real GDP growth came in at 3.2% annual rate, crushing every economics group forecasts. Real GDP grew 3.0% in 2018 the fastest growth for any calendar year since 2005.

Leading Industry groups: Technology, namely software, internet, semiconductors and retail are leading this market. These are growth orientated groups indicating a strong market.

Summary: The equity market is off to a strong start this year. It would be normal for some profit taking and some consolidation. Keep an eye on leading groups and economic numbers for signs that things continue or change for the worse. For now, entrepreneurs, new technologies, tax cuts, deregulation, an accommodative fed, and corporate profits continue to benefit stocks and the economy. At this stage don't fall into the narrative that this market must end due to being 10 years old. There is a strong view out there that this current bull market started with the Brexit vote and U.S. elections in 2016. We might be in for an expansion similar to what we saw in the early 1950s. Naturally, if markets were to violently retreat from these highs, that might negate this view. Remember markets don't move in a straight line, but trends may persist for a very long time. Stay tuned!