Month: July 2017

Record After Record!

Posted on by George Mahfouz

Another week in the books and records continue to fall. The Dow Jones Industrial Average (chart) and the S&P 500 (chart) both closed the week at record highs, while the Nasdaq (chart) and the small-cap Russell 2000 (chart) are within a stones throw from their all-time highs. These key indices have been setting records all year long. With the exception of a few minor pullbacks throughout the year, stocks have pretty much gone up in a straight line. This despite a very tepid economic recovery here in the United States with the GDP coming in at a modest increase of 1.4%.

I think it is safe to say that this latest record setting week was due in part to Federal Reserve Chairman Janet Yellen’s dovish comments regarding interest rates and that the Fed would be very gradual in its future hikes and that such action will be determined by how well the economy fares. If the latest retail sales numbers and consumer price index number are indicative of what the Fed will do, we may not see another hike until year end or even 2018? This is just what the markets needed in order to keep a floor not only under the stocks, but the confidence to proceed as business as usual hence record setting highs.

Well the old adage of you can’t fight the tape or the Fed for that matter is certainly playing out so far in 2017. Are there any catalysts out there that could change the markets mind or its direction? Well we are about to enter the busiest week of Q2 earnings reporting season so far with over 440 companies reporting their results next week including the likes of Netflix (NasdaqGS: NFLX), Goldman Sachs (NYSE:GS), International Business Machine (NYSE: IBM), Johnson & Johnson (NYSE: JNJ), United Airlines (NYSE: UAL), American Express (NYSE: AXP), eBAY INC. (NasdaqGS: EBAY) and General Electric (NYSE: GE) just to name a few. The following week over 1400 companies will report their quarterly results. So if there is anything that could slow this bull market down right now this is it. However, if corporate America continues to report solid earnings results, new record highs could very well continue into the foreseeable future. Good luck to all 🙂

~George

 

Where Is The Vol?

Posted on by George Mahfouz

As the second quarter came to a close yesterday volatility is no where to be found. The CBOE Market Volatility Index also referred to as the VIX has been pretty much dormant this entire year (chart). Typically vol ticks up as we approach summer for a variety of reasons such as earnings reporting season, seasonality and of course the Federal Reserve policy actions. As expected the Fed did raise rates in June but the markets appear to be pricing in a higher interest rate environment. So far this year the Dow Jones Industrial Average (chart) is up 8.03%, the S&P 500 (chart) is up 8.24%, the Nasdaq Composite (chart) is up a whopping 14% and the small-cap Russell 2000 (chart) is up a modest 4.29%.

Seemingly everyday stocks are in melt-up mode. There are days where volatility tries to rear its head up, but that does not last very long. (See chart below). Even when Goldman Sachs came out with a bearish report on June 9th comparing the red-hot tech sector to the internet bubble era, the negative effect of that report lasted only a couple of days before tech found support and then proceeded to make new highs. The traders and investors that are waiting for the proverbial 10% or more correction are just not getting it. Buying the pullbacks is what has been working ever since the election but the problem is that if you are not stepping in on the 1-3% percent retracements, you are missing the next leg up. How much longer can this type of market environment last? Now that Q2 is in the books, earnings reporting season will soon begin. Let’s see if corporate earnings continue to come in stronger than analyst expectations and if so, stocks may just continue to remain bulletproof.

A quick gander at the technical shape of the aforementioned indexes and there are no signs of overbought or oversold conditions according the relative strength index. Therefore I am expecting vol to remain relatively low until at least second quarter earnings season begins. Good luck to all!

Both Paula and I wish everyone a very safe and happy Fourth of July holiday weekend 🙂

~George

VIX Chart - Paula Mahfouz