Market Commentary

Like It’s 1999!

Posted on by George Mahfouz

Stocks are partying like it’s 1999 and it is breathtaking to say the least! The Dow Jones Industrial Average (see chart here) once again set a record high on Friday, closing just under the 45000 level. The S&P 500 (see chart here) also set an all-time high closing above 6000. The Nasdaq Composite (see chart here) is remaining strong above the 19000 mark and the small-cap Russell 2000 (see chart here and below) finally made a new all-time high last week after lagging most of the year.

What in the heck is going on with the major averages and these non-stop record highs? Well, one thing to point to is the end of the 2024 election. After the results came in, stocks, crypto and seemingly everything under the sun took off! Why you ask? Well the uncertainty of would get in in is over and clearly the markets liked the results! Are we looking at some form of irrational exuberance here? Or do the markets deserve this type of non-stop record highs?

One of the metrics I have consulted with is the price to earnings ratio aka the “p/e” ratio of the S&P 500 index. The price to earnings ratio is the ratio of a company’s share price to its earnings per share. This ratio is used for valuing companies to find out how they are priced. Now when I look at the overall p/e ratio of the S&P 500 (see chart here) it is trading just under a 30 price to earnings ratio. The historic price to earnings ratio of the S&P 500 is around 17. I think it is safe to say that stocks may be getting ahead of themselves comparatively speaking. Another metric I also consult with is the relative strength index aka the RSI. The Relative Strength index is a technical indicator that demonstrates whether a stock or index is overbought or oversold. Currently the RSI on the aforementioned indexes is approaching overbought territory according to the RSI principles.

Let’s not forget stocks and/or indexes can remain overbought for extended periods of time, however, earnings must indeed reflect or catch up to where the values are currently trading at.

Good luck to all 🙂

~George

The Time Has Come…

Posted on by George Mahfouz

The time has come for this election to be over. I don’t know about y’all, but I am exhausted by the way these politicians, and the entire political backdrop has gone. Is it possible to hear any more lies? Is it possible to see any more ads? Raise your hands if you want to see anymore yard signs! What in the world has happened to our country? Seriously, who can take any politician or surrogate seriously anymore? How can these people sit up there with a straight face with the words they say and the lies they spew? Not to mention the crazy conspiracy theories that are kicked out seemingly on the daily.

What’s worst there are millions of people that align and are okay with this behavior. What, for their own political gain or for their own financial benefit? What an embarrassment this is not only here at home but to the entire world! What happened to honesty? What happened to decency? What happened to our country? I can only hope and pray for a better future for our country, our children, our grandchildren and for future generations.

Now the markets do not seem to care to what’s going on politically. Despite the recent sell-off over the past week, stocks and other highly volatile assets continue to trade near their all-time highs and are now finding some support. The Dow Jones Industrial Average (see chart here) is trading around 42000, the S&P 500 (see chart here) is trading in the 5700-5800 zone, the Nasdaq Composite (see chart here) is north of 18000 and the small-cap Russell 2000 (see chart here) is currently trading above 2200. The economy and job market are still the primary driver of why the stock market has performed so well. It also does help that the Federal Reserve is lowering interest rates which historically bodes well for stocks and derivatives alike.

Good luck to all 🙂

~George

About A Month Away…

Posted on by George Mahfouz

We are about a month away from the election and the markets seemingly don’t care or have any new concerns. Once again both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) hit records. The Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are trading positively as well.

Without question there is even more confidence in the markets now that the Federal Reserve is cutting interest rate. Not only did the Fed cut interest rates by 1/2  point last month, Jerome Powell the Chairman of the Federal Reserve signaled more rate cuts are forthcoming. Couple this new sentiment from the Federal Reserve along with growing confidence in the economy and the job market, it’s no wonder the Dow Jones (see chart here) and the S&P 500 (see chart here) are once again setting all-time highs. Some pundits are beginning to call this a “goldilocks economy” while others are waiting for the next shoe to drop. As far as the next big catalyst is concerned, well clearly it’s the upcoming Presidential election. However, here in October we will begin to see Q3 earnings results being reported from corporate America. This too is expected to be a tell-tale sign of how companies are currently faring and we should definitely see how the consumer is feeling, especially with the rate cut and the positive impact that is having on consumers. This new backdrop should begin trickling down to corporate America revenues and future forecasts.

Let’s take a quick look at the technical shape of the indexes. The Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) are trading near the upper end of the trading range they have been in. Please note neither index is in “overbought” territory yet but are approaching the 70 level of the RSI aka the Relative Strength Index. As I look at the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here), these indexes are finding support at their 20-day moving averages. So technically speaking things look to be ok here too.

Good luck to all 🙂

~George

All Time High For The Dow!

Posted on by George Mahfouz

Yet another all-time high was set for the Dow Jones Industrial Average! (see chart here and below). Stocks continuing their winning ways especially for the Dow Jones Industrial Average which closed out the month of August at 41,563 setting a fresh record high. The S&P 500 (see chart here) is flirting with a new high as well, however, both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are playing catch up.

For some the stock market performance here in 2024 is a head scratcher. Pundits are asking why is the stock market continuing to outperform despite the headwinds our country faces? The immediate knee jerk response to that question is seemingly easy to answer; inflation is cooling, and the Federal Reserve is signaling rate cuts. I am not so sure it is that easy of an answer. Sure, inflation is indeed adjusting down and the Fed seems to be ready to cut rates, however, I would also have to add in that the calendar is also playing a role. Historically, election years tend to positive years for stocks, this along with the Fed seemingly ready to cut rates is a set-up for market outperformance, hence all-time highs have been plentiful throughout this calendar year. That being said, I would not be surprised to see volatility pick right back up as we head into September. Historically, September is a tough month for stocks, (click here). Pundits call it the September effect which basically is an historical average over the past 100 years on how the market performs in the month of September and that metric demonstrates a consistent downward trend in this given month. Now past performance does not guarantee future results, but this is something I will pay attention to.

Whatever the case is, we are now heading straight into year end with a Presidential Election to boot. I do expect a lot of action and volatility straight ahead. Good luck to all 🙂

~George

 

A Black Swan Event, Almost…

Posted on by George Mahfouz

In last month’s blog, I spoke about a “black swan type of event” and how these types of events could create market disruptions. Well low and behold, last month our country almost had a black swan event in Pennsylvania involving the former President. Thank goodness that was not the case.

So as much as the markets seemingly chug along during the year with its normal ebbs and flows, investors must consider anomalies that can occur to disrupt the stock market. Whether it is a terrorist attack (domestic or foreign), a middle east crisis that could disrupt the oil markets or a housing market crash as we witnessed in 2008, all these events could be considered as a “black swan event”. Now there are ways to protect your portfolio in case of such an event and I would recommend speaking to your professional portfolio manager/financial advisor to cover this topic.

Now to the markets, the major averages in July did experience a spike in volatility, $VIX (see chart here). This is no surprise to me especially as 2Q earnings reporting season got into full gear and of course the political events that occurred last month including President Biden dropping out of the race. Q2’s corporate earnings have been a mixed bag especially in the tech sector where many tech companies reported their earnings that disappointed investors. Let’s not forget stocks have been trading at all-time highs and if you miss the mark in your earnings report, those all-time highs will adjust accordingly. Let’s not forget it is also unreasonable to expect that record highs will continue if companies don’t perform to the expectations that drove stocks to all-time highs.

As I look at the technical shape of the markets, the Dow Jones Industrial Average (see chart here) and the small-cap Russell 2000 (see chart here) are currently being supported by their 20-day moving averages. However both the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) have both been under selling pressure and have currently slipped below their respective 20-day M/A. I am not overly concerned about this break below; we would have to see more selling pressure in order to see if this is a new trend or a temporary situation.

Good luck to all 🙂

~George

Earnings And The Election…

Posted on by George Mahfouz

Now that the first half of the year is in the books in which we witnessed the markets hitting all-time highs, investor focus should shift to Q2 earnings reporting season and the upcoming election.  Once again the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) hit record highs on Friday to close out the month of June. The Dow Jones Industrial Average (see chart here) is hovering around the 39000 zone, while the small-cap Russell 2000 (see chart here) continues to bounce around the 2000 level.

After the much-anticipated Presidential debate which is the first one in this election year, stocks reacted in a volatile manner on Friday. As mentioned above the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) both set all-time highs on Friday before reversing and closing lower on the day. I am not sure why stocks took off at the open on Friday and set all-time highs especially with how the debate went on Thursday night. I refused to watch the debate for a variety of reasons and from what I am hearing and reading, I am glad I did not watch it. There are no words for what is going on here in our country and I will leave it at that. I’d rather focus on the positive which are the markets and how incredibly resilient they are.

As I look at the back half of the year, stocks should be put to the test from here on out. Q2 earnings reporting season is on deck with most companies reporting their results after the 4th of July holiday. Without question analysts and investors alike will be focused on the health of corporate America and how they are growing their top and bottom lines. This should be one of the main factors on whether this powerful rally continues. The other wild card in the mix is the upcoming election. Depending on how things shake out between now and the actual election, this could have an impact of a “black swan” type event and if this is the case, then we could see one wild ride into year-end.

Good luck to all 🙂

~George

Dow 40000, Now What?

Posted on by George Mahfouz

Last month we witnessed the Dow trade above 40000 for the first time ever and now the question is, now what? Yes, that’s right, the Dow Jones Industrial Average (see chart here) eclipsed the 40000 marks for the first time in its history. I remember back in 1999 there was a book that I bought titled “Dow 40000” by David Elias. Mr. Elias predicted that the Dow would hit 40000 by the year 2016. Well, that might have been a bit too optimistic regarding the timeframe, but as we just witnessed, his prediction of Dow 40000 came true. For me as I read that book, the Dow was trading in the 10000 zone, and this was nearing the height of the dot-com boom. My view at that point in time was how in the world can the Dow Jones Industrial Average triple from here after it more than tripled during the dot-com boom. It took 25 years to do so and now the question on many investors’ minds is “has become was a short-or near-term top?” Based on how the Dow has responded after reaching that record high of 40000, it sure appears that way.

After topping 40000, the Dow Jones Industrial Average (see chart here and below) the Dow gave back 2000 points over the course of the next week or so and then on Friday bounced back to close at 38600 which is right at its 100-day moving average. The Dow wasn’t the only index to reach record heights. The Nasdaq Composite (see chart here) also hit an all-time high last month topping the 17000 mark, the S&P 500 (see chart here) hit an all-time high of 5346 while the small-cap Russell 2000 (see chart here) is seemingly locked in a trading zone between 1900 and 2100.

I remain in awe of the strength of the stock market despite all the headwinds our economy faces and with the geopolitical backdrop. We also cannot forget this is an election year like no other. To that end, I am expecting volatility to rear its head this summer and as we head into the fall.

Good luck to all 🙂

~George

 

 

The Technicals Are In Play…

Posted on by George Mahfouz

As the markets try to find their footing, the technicals are surely in play. After a record-breaking performance over the past few months, the major averages are flirting with breaking down. The Dow Jones Industrial Average (see chart here) recently broke down below its 20 and 100 day moving average, as did the small-cap Russell 2000 (see chart here). Both the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have broken down through their 20 day moving averages, however, these indices are finding support at their 100-day M/A.

The recent market action to me is no surprise. As I alluded to in my previous blogs, month over month stocks and the major averages have been setting all-time highs. At some point in time a pause and reversal in stocks is to be expected. That time appears to be here and now. Of course, there are other factors weighing in on the markets recent pullback with the spotlight coming back on to the inflationary backdrop our economy has faced. Inflation has dropped dramatically over the past year, however, recently there has been an uptick in key sectors, click here for a recent report on the consumer price index. Now pundits are tying the most recent consumer price index into a narrative that the Federal Reserve may not be cutting interest rates after all. Some economists are even suggesting the Fed may even hike rates should inflation continue to uptick.

I come from the camp that a bump in the road with a slight uptick on inflation is nothing to panic over. Now if over the next couple of months the CPI continues to rise, then this would be a different discussion. In the near term if the major averages are able to hold here at the key support zones, then the recent pullback should find some footing. If the selling pressure continues then the 200-day moving average could be the next stop.

Good luck to all 🙂

~George

Strongest Performance In 5 Years…

Posted on by George Mahfouz

Stocks took off in the first quarter with the S&P 500 (see chart here) delivering its strongest Q1 performance in 5 years gaining over 10%. The Dow Jones Industrial Average (see chart here) also closed Q1 with a gain of 5.6%, the Nasdaq Composite (see chart here) finished the quarter up over 9% and the small-cap Russell 2000 (see chart here) finished up around 5%. So, as I posted last month, stocks continue their record setting ways.

So why are the markets continuing to demonstrate strength despite interest rates remaining high relative to when this bull market started? I think part of the answer is right there. The Federal Reserve is continuing to indicate that three interest rate cuts remain in place for 2024 which is bullish for the markets.

Another first quarter driver of the markets can be attributed to the “Magnificent 7”. Nvidia (Symbol: NVDA), Meta Platforms (Symbol: Meta), Amazon (Symbol: AMZN), Microsoft (Symbol: MSFT), Alphabet (Symbol: GOOGL), Apple (AAPL) and Tesla (TSLA) are the Magnificent 7 and are responsible for 40% of the S&P 500’s (see chart here) gain in Q1. This dynamic too attributed to the momentum stocks witnessed in the first quarter although there are a couple of chinks appearing in the armor of the Magnificent 7 and that is the recent under performance of Apple and Tesla. Personally, I would like to see a broader rally here not just 7 stocks that are making up a big percentage of the overall gains.

That being said, and now that the first quarter of the year is in the books, earnings reporting season begins here in April. Earnings season should be the next catalyst as to where stocks and indexes go. As I just spoke to, I would like to see a broader based rally and Q1’s earnings results just might deliver results that could extend this year’s impressive rally. However, if corporate America issues flat to softer results, we could see a pause in this rally and even a potential pullback.

Good luck to all 🙂

~George

Record Highs Continue…

Posted on by George Mahfouz

Record highs continue for the Dow Jones Industrial Average (see chart here) and for the S&P 500 (see chart here). In February, the Dow Jones Industrials hit an all-time high of 39282 while for the first time ever, the S&P 500 (see chart here) crossed the 5000 mark trading as high as 5111. These two indexes continue to demonstrate impressive strength along with the Nasdaq Composite (see chart here). It appears that the Nasdaq Composite just might join the Dow Jones Industrials and S&P 500 in hitting a fresh all-time high anytime. The small-cap Russell 2000 (see chart here & below) still has a way to go to reach its all-time high but at least this index is trending up.

Stocks aren’t the only asset class at or near all-time highs, Bitcoin has broken out as of late and has surpassed $60,000 per coin mark. The momentum continues here since Bitcoin ETFs were approved. Now this asset class in not for the faint of heart. As much as Bitcoin continues to rip, sell-offs in this asset class can be dramatic and fast.

So, what is going on with these all-time highs and the “risk on” spirit from institutional investors and retail investors alike? For one, I think the strength of the economy has something do to with this, however, I believe that rampant speculation is also play a role. Especially out of the artificial intelligence sectors as stocks there also continue to make all-time highs. My concern is how long this most recent rally has lasted. For example, the S&P 500 (see chart here) has seen gains in 15 of the last 17 weeks which is rarely seen.

With that being said, as I look at the technical shape of the aforementioned indexes, they are not in overbought territory according to the relative strength index aka the RSI. Many market technicians use this key technical indicator to gage whether a stock or index is overbought. 70 is the key value level of the RSI that would indicate an overbought condition and the major averages are trading below this mark. Now this is only one technical indicator and there are clearly many other factors that determine the state of the markets, but as of now nothing appears to be getting in the way of this impressive months long rally.

Good luck to all 🙂

~George

All Time Highs Continue - Paula Mahfouz