In The Know - November 2019

George Tkaczuk |

In The Know - November 2019

George Tkaczuk | 

“Investing should be more like watching paint dry or watching grass grow. If you want excitement , take $800 and go to Las Vegas” – Paul Samuelson

Market Condition: The current market is in a confirmed uptrend.

  • The S&P 500 is trading above the 3000 level a previous major resistance area, and is at new highs. The Nasdaq composite also hit a record high as did the Dow Jones Industrials Index.
  • Important sectors such as financials (XLF), technology (XLK), industrials (XLI), homebuilders (XHB), and consumer discretionary (XLY) stocks are trending with the market indexes, indicating we do not have any type of negative divergences building in the background.
  • After a market hits new highs, it is common for the market to retest these important levels; the subsequent reaction should give us some indication of the continuation of the trend.
  • Widely held institutional leaders like Visa (V), Apple (AAPL), Facebook (FB), JP Morgan (JPM), Bank of America (BAC), United Health Care (UNH) and others thus far have had favorable price reaction to the latest earnings reports as earnings season get underway. This indicates that there is still an appetite and demand for owning shares of stock by the large institutions.

Recent headlines: On the surface some of these may seem scary, but not necessarily so.

  • The Federal Reserve cut its benchmark lending rate last week for the third time this year. Historically, stocks have performed well after three successive cuts. On average the S&P 500 index has risen 10% six months later and 20% a year later, after the above stated cuts.
  • Slowing global growth continues to make headlines, however we see Global Market Breadth Expansion. The Global Dow index is near highs, and the S&P Global 100 index is breaking out. Foreign markets like Taiwan, Brazil, and Switzerland are at new highs, with countries like Sweden, Japan, Greece and Germany not far behind. This combined with the behavior of the U.S. market is very positive across the board.
  • China Trade Deal, despite numerous articles appearing in the financial press from anonymous sources or “people familiar with the matter,” that China is going to back out, this has not materialized yet. The signing of Phase One Trade agreement is set to be signed next month. Naturally, if this blows up and more tariffs are added, this could have some impact. I believe the market is still not pricing in a positive outcome.
  • House passes resolution laying out formal rules of the Trump impeachment inquiry, despite being dead on arrival in the Senate, this ought to keep optimism out of the market as we climb the wall of worry.

The Economy: Mostly positive numbers except for the softness in manufacturing surveys, due to China trade worries.

  • Non-farm payrolls increased 128,000 in October beating expectations (despite UAW strike) with positive revisions to August and September. The labor force participation rate rose to 63.3% the highest since 2013.
  • Personal income is up 4.9% in the past year while spending has increased 3.9%
  • The First estimate for Q3 real GDP growth is 1.9% annual rate beating the 1.6% consensus expected
  • The conference Board Leading Economic index LEI for the U.S. declined 0.1% in September. Decline was lead by weakness in the manufacturing sector. The LEI is consistent with an economy that is still growing, albeit more slowly.

Summary: Combining all the above data tells us we are “Ok” and “Ok” for now is good enough for the market to continue trending upward. There has been some concern that the market has been running for 10 years. Keep in mind we have had three bear markets during this period (2011, 2015-2016, and 2018.) The markets have mostly moved sideways over the last 21 months. So we have had some resets along the way and a considerable period of consolidation, thus another leg up is possible. Keep an Open Mind.

“You only live once, but if you do it right, once is enough” – Mae West