Saturday, November 10, 2018

Weekly wrap for Nov 9

After Thursday and Friday, it might seem the markets are down, but the weekly numbers tell a different story, with the three major indices up for the week. The Nasdaq, with its tech exposure, had the smallest increase. The tech sector is obviously under recent pressure. 

Index Nov 2 Nov 9 +/- %
S&P 500 2,723.06 2,781.01 + 57.95 + 2.12%
Nasdaq 7,356.99 7,406.90 + 49.91 + 0.67%
DOW 30 25,270.83 25,989.30 + 718.47 + 2.84%

Over the last 12 months, the Dow is up 10.77 percent, the SP 500 up 7.6 percent, and the Nasdaq up 9.7 percent.  

The weekly chart of the SPY still indicates a long position in the broader market. (The blue line is the 34-week moving average; the red is the 13-week moving average).

While the U.S. economy still seems to be just fine from most reports, investors seemed to worry about a couple of things on Thursday and Friday: 1) The Eurozone, 2) trade with China, and 3) the Fed and interest rates. Another topic of interest has been oil. 

First, it seems that the Fed has really not indicated more hikes on the Fed funds rate than most are projecting: one in December and up to four next year. But many are reading between the lines after the Fed's report on Thursday that they might be more aggressive than probability suggests. I'm not sure what affect this will have on the market, but it suggests to me more weakness in the bond market. Bonds have underperformed lately, so I converted my bond fund holdings to a Schwab money market this week, which now has a 7-day SEC yield of 2.07 percent. (See previous post on the Fed.)

The Eurozone could not borrow from the momentum of the U.S. economy in the third quarter as economic growth slumped to a tepid 0.2%, the slowest rate in more than four years. With the 19-nation currency bloc beginning to stagnate, and the heavyweights failing to post significant gains, Brussels is in panic mode, likely leaning on the European Central Bank (ECB) for further stimulus.

The IMF had projected a higher growth rate, closer to 1.8 percent. See chart below (click on it for a larger version).

And just about everyone seems confused with trade, with conflicting messages coming out of the White House. It's just kind of a wait and see, but I believe we'll see something positive in the next few months. (But I could be wrong, too. There is no predicting the future.)

Now for oil. 

Historically, when the global economy slows, less oil is used, and the lower demand tends to drive oil prices down. According to Bloomberg, dropping oil prices have been a reliable indicator of a slowing trend in economic activity.

US benchmark oil fell into a bear market last Thursday when prices fell by more than 20% since the recent peak. The price of West Texas Intermediate crude has declined for ten consecutive sessions, which is the longest stretch of declines since 1984, according to Dow Jones Market Data. The volatility in the stock market we saw on Friday owed a great deal to falling oil prices. What's interesting is that gold also fell about $10 an ounce. Normally, you'd expect the opposite.

For the general markets, overall, while IBD indicates a confirmed rally in the markets, I rate the stock market as only uncertain. I'm staying invested, but my pain-point will come if the SPY dips below 275.06. I have all my stops around that level. I'll convert equities to either inverse ETFs or money market funds. 

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