Strong Earnings – Record Highs!

Last month I asked “Is this a healthy correction or something more?” and based on how strong earnings have been along with record highs, I think it is fair to say last months action was more of a healthy pullback than anything else. The Dow Jones Industrial Average (see chart here) is at an all-time high trading above the 36000 mark, the S&P 500 (see chart here) has also hit an all time high today, the Nasdaq Composite (see chart here) has also joined the all-time high club and the small-cap Russell 2000 (see chart here) is within striking distance of its all-time high.

The most recent catalyst for stocks and indexes hitting their all-time highs are earnings. 80 percent of the companies on the S&P 500 that have reported their Q3 earnings so far have beat Wall Street expectations. There are still 1000’s of companies set to report over the coming weeks but if trend continues we could very well be seeing more records set. Along with a strong earnings reporting season no question the Fed continues to encourage all investors to participate due to how low interest rates remain. For most investors there are not many options right now to generate meaningful returns other than the stock market or the high flying crypto space which remains incredibly volatile and extremely risky.

Now let’s take a look at the technical backdrop of the aforementioned indexes. The Dow Jones Industrial Average (see chart here) is trading comfortably above its key moving averages and not quite overbought according to the relative strength index (RSI) and the same can be said for the S&P 500 (see chart here) and the Russell 2000 (see chart below). However, the Nasdaq Composite (see chart here) has just breached the 70 value level of the RSI which is the pure definition of a stock or index becoming overbought. Note, stocks and/or indexes can remain overbought for extended periods of time before a turn.

One of the oldest adages on Wall Street is the trend is your friend and it is clear where the trend has been and where it will most likely go. That said, it is always best to consult with your certified financial planner/advisor if you are considering any portfolio additions, deletions or adjustments.

Good luck to all 🙂

~George

Strong Earnings - Record Highs - Paula Mahfouz

Risk On Remains On!

Risk on in the markets remains on as we approach the second half of the year! It’s truly remarkable to me how stocks, crypto, real estate and other asset classes are still trading at or near all time highs. I do get that the ongoing accommodative policies provided by our Federal Reserve and from central banks across the globe is the main reason why asset prices continue their bullish ways.

That said, I do think it is time to start considering how things could look once the Federal Reserve in our country starts backing away from its accommodative monetary policies and as interest rates begin to normalize. This is not a question of if, it’s a question of when. Tell tale signs of inflation are now seemingly everywhere which is what the Federal Reserve is paying close attention to and could be the catalyst for the Fed to act. It is at this point our markets could be adjusting to align with real interest rates and normalized price to earning multiples. To that end, we have and continue to witness the most unique market conditions ever seen. So I am not calling a top here and I do respect the power of the Federal Reserve, however, I am just suggesting that we may see a healthy and overdue adjustment in asset prices which may not be such a bad thing. There are many investors that are on the sidelines and would be more than happy to step in should we see asset prices adjust to a lower entry point.

Let’s take a quick look at the technical shape of the major averages. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the Small Cap Russell 2000 (see chart below) all are trading above their 20, 100 and 200 day moving averages. This alone is a strong technical backdrop and what’s more is none of the aforementioned indexes are currently overbought according to the relative strength index aka the RSI. So technically speaking things look pretty good right now.

Good luck to all 🙂

~George

Risk On Remains On - Paula Mahfouz