George

Dow 20,000!

Posted on by George Mahfouz

There has been plenty of chatter over the past month or so as to whether or not the Dow Jones Industrial Average (chart) would surpass the 20,000 mark and what that would mean for the markets going forward. Well lo and behold, it did it! For the first time in its history, the Dow Jones Industrial Average (chart) breached the 20,000 milestone mark last week thanks in part to earnings reporting season. The Nasdaq (chart) also continues to set record highs although this week this particular index has recently been challenged by Donald Trump’s commitment to altering the H-1B visa rules which in turn could effect the tech industry in a meaningful way. The S&P 500 (chart) also remains near its all-time highs while the small-cap Russell 2000 (chart) is hovering around its 50-day moving average.

While earnings reporting season remains a key focus for investors, one cannot ignore the constant daily flow of news out of Washington D.C. President Donald Trump like no other has signed double digit executive orders in his first week of office alone fulfilling part of his campaign pledges. These executive orders range from loosening regulations in a variety of industries, to border security, to withdrawing the United States from the Trans-Pacific Partnership Negotiations agreement and to the construction of the Keystone XL pipeline, just to name a few. Without question Donald Trump means business and is acting swiftly about it. We know how the American public feels about this and most recently how corporate America is beginning to speak out, and it’s a mixed bag to say the least.

The question now is how will the markets ultimately react to the new norm, the protectionism posture of the new administration and the swift policy changes that are occurring? Well for the first time in a while market volatility (see chart below) has spiked as investors and traders alike try to digest the ultimate outcomes of such dramatic changes. In my humble opinion, vol is just getting started. Good luck to all 🙂

~George

Dow 20,000 George Mahfouz Jr

Earnings Take Center Stage…

Posted on by George Mahfouz

Earnings reporting season begins in earnest this week which could play a role in determining whether or not the bull market has more room to run. This past Friday the money center banks kicked off the reporting season as JP Morgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) recorded eye popping profits while Wells Fargo (NYSE: WFC) continues to deal with the aftermath of the “fake-accounts” debacle that rocked the bank last year.

As I look at the charts of the key indexes, I do see a potential technical catalyst looming. The Dow Jones Industrial Average (chart), the S&P 500 (chart) and the small-cap Russell 2000 (chart) all share similar and current chart patterns. Over the past month or so, these key indices have been consolidating and trading in a tight range and when you have a looming catalyst such as earnings reporting season, most likely this pattern will breakout or breakdown. The Nasdaq (chart) does not fit this consolidation profile yet as it has been making new highs and leading the pack so far this year. Another technical set-up I look for is overbought or oversold conditions. Seemingly we have been in overbought conditions since the election but technically we are not according to the relative strength index also known as the RSI.

In my previous blog I did write about my expectation of increased volatility as we headed into January and earnings reporting season and how to hedge yourself against such volatility. To my surprise, vol has remained relatively low so far, however, there are catalysts looming as described above. As far as protecting a portfolio against any future volatility, there are many ways to do so but the most effective and simplest way is to buy S&P 500 puts. Especially while vol is low and premiums are relatively cheap. So if you have a “long only” portfolio buying some protection in the form of S&P 500 put options might not be a bad idea. Of course it is always best to consult a certified financial planner(s) before making any investment decisions or any adjustments to your current portfolio. My goal is to bring light to strategies that can be helpful to you that certain managers might not cover.

Good luck to all 🙂

~George

 

 

Happy New Year!

Posted on by George Mahfouz

Happy New Year to all and what a year of celebration for the bulls in 2016. The major averages last year notched very impressive gains. The Dow Jones Industrial Average (see chart below) finished the year up 2,337 points or 13.42%, the tech focused Nasdaq (click here for chart) closed up on the year 376 points or 7.5%, the S&P 500 (click here for chart) closed up 194 points or 9.54% and the small-cap Russell 2000 (see chart below) finished out 2016 up a whopping 221 points or almost a 20% gain outperforming most benchmarks. This eye-popping rally really kicked into high gear after the stunning upset victory Donald Trump pulled off over Hillary Clinton in the presidential election. So that was last year, now let’s take a look at 2017 and what lies ahead.

I begin with the obvious. Markets are certainly overbought and have been since the November 8th election results. Then in December, the Federal Reserve raised interest rates for the first time in a year and then added language for an additional rate hike in 2017 to bring the total projected rate hikes this year to at least three. Historically a rising interest rate environment puts pressure on equities and in particular the high beta names. Consensus has it that the Fed will move slowly to avoid any shocks to the economy or the markets. However, with Donald Trump’s proposed economic pro-growth policies, debt and inflation should rise. So I am sure the Federal Reserve will be keeping a close eye on how inflation ticks up as 2017 unfolds. Should inflation rise faster than anticipated this too could be a challenge for the Fed and our stock market.

So based on our current market environment it is my view that volatility will not only pick up in January but the recipe described above signals potential elevated volatility throughout the year. We also will begin to hear from corporate America this month as we head into earnings reporting season. I would expect earnings from multi-national companies to be a bit challenged due to the continuing and significant strength that the U.S. dollar has been exhibiting. That said, there will be opportunities abound in this new year but I am preparing to embrace volatility and hedge my positions going forward. In my next blog I will talk about hedging strategies in order to offset the impact of potential increased vol. Until then, both Paula and I wish everyone the happiest and healthiest new year to all. 🙂

~George

Dow Jones chart Paula MahfouzRussell 2000 post george mahfouz jr

 

As Expected, The Fed Raises Rates…

Posted on by George Mahfouz

To no surprise, the Federal Reserve raised interest rates 1/4 point today citing stronger economic growth and a pick-up in inflation. A stronger job market also played a role in the decision of the Fed. What wasn’t quite expected was the language of an additional anticipated rate hike from the projected two hikes in 2017 to now three. This might of caused the slight sell-off yesterday in the markets with the Dow Jones Industrial Average (chart) falling 118.68 points, the S&P 500 (chart) was lower 18.44 points, the Nasdaq (chart) fell 27.15 points and the small-cap Russell 2000 (chart) retraced by 17.51 points.

With all things considered, this pullback was long overdue. In fact, I am surprised that the markets held up like they did yesterday. Especially considering the rip roaring rally most equities have enjoyed since the presidential election. Markets have been on fire with the Dow Jones Industrials (chart) gaining almost 1,600 points, the S&P 500 (chart) ripping 125 points, the Nasdaq (chart) catapulting about 300 points and the small-cap Russell 2000 (chart) up a staggering 170 points. What a breathtaking rally in such a short period of time.

So what can we expect between now and year end? Let’s think about this for a minute. If you are an institutional investor, fund manager, hedge fund or the like would you be taking profits into year end? Or would you wait until we get into the new year knowing that capital gains taxes and corporate taxes are coming down? I think it is fair to say the latter would make the most sense. Add into the mix the rotation that continues out of the bond market and into equities in which certain pundits believe we are in the fourth or fifth inning of that rotation, one has to ascertain that this bull market has more room to run.

Whatever the case I think pullbacks will be bought as momentum continues into year-end. Paula and I wish everyone the happiest and healthiest holiday season 🙂

~George

OPEC Adds Fuel To The Rally!

Posted on by George Mahfouz

For the first time since 2008 the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output sending oil prices and oil stocks soaring. Oil (see chart below) had one of its best days in years soaring over 10% which helped propel the Dow Jones Industrial Average (chart) and the S&P 500 (chart) to set yet another record high yesterday before a late day sell-off. Nonetheless, stocks have been on fire since Donald Trump won the election. Seemingly every sector other than the gold sector is overbought. All you have to do is look at the financial sector Symbol: XLF (chart), the materials sector Symbol: XLB (chart), the industrials sector Symbol: XLI (chart) and the energy sector Symbol: XLE (chart) to see how overbought this market is. That said, stocks and or indexes can remain overbought or oversold for that matter for extended periods of time. Add into the mix Trump’s pledge to spend over $1 trillion on infrastructure here in the U.S. and the pledge to cut corporate and capital gains taxes and why would anyone think this rally could not continue?

It is easy to get caught up in the current euphoria of this breathtaking rally in the stock market and the promises of the incoming administration. However, let’s not forget what has been promised has to actually occur and if there is any back peddling by the new administration, the markets could react just as aggressively to the downside as they have to the upside. I am not suggesting that this will happen but we have all seen politicians make promises before they are elected only to change their tune after they take their respective seats. Which is why I do my best to tune out the noise and focus on overbought and oversold conditions. And this is where we find ourselves today. A very overbought market that I would expect will revert to the mean at some point in time.

Good luck to all 🙂

~George

oil chart George Mahfouz Jr

The Trump Rally Continues…

Posted on by George Mahfouz

Caught off guard! I think this phrase wraps it up. After Donald Trump won the presidential election both voters and markets were caught off guard. The polls all but had Hillary as a shoe in for the oval office. Instead the exact opposite occurred not only with the election but how wrong the markets had it if Donald Trump pulled it off. Not only did the markets not crater, (although last Tuesday evening when the voting results were coming in the futures were tanking) stocks are back to setting records. Since the election, the Dow Jones Industrial Average (chart) hit an all-time high of 18,934, the S&P 500 (chart) is within striking distance of its all-time high, the small-cap Russell 2000 (chart) also hit an all-time high, however, the tech focused Nasdaq (chart) is lagging a bit due to the uncertainty of the new Trump administration policies on trade and how this could affect the technology space.

It has been quite a while since the markets have responded in such a bullish manner. Today marks the 7 straight day of gains for the Dow Jones Industrial Average (chart) led by industrials and banks. The banking index has exploded due to the hope that the Trump administration will relax or reverse the Dodd-Frank act which places overbearing regulations on the financial industry as a whole. Check out one of the most widely held bank exchange traded funds Symbol: XLF (chart). This ETF has moved up over 10% in the past week alone, simply unheard of. Other benefactors to the Trump presidency is anything and everything in infrastructure and materials. Trump pledges to spend over $1 trillion dollars rebuilding America’s infrastructure to include highways, roads, bridges, airports etc. It’s no wonder the markets are setting records once again.

Now what? Without question Trump winning the election is seemingly good the for the economy and so far for the stock market. However, as with any rally or sell-off for that matter, “reversion to the mean” typically occurs. I would be very careful chasing this rally or deploying any new capital. My preference is to wait until the inevitable pullbacks occur and look at the aforementioned sectors to consider any new positions. Of course it is always prudent to consult with a certified financial planner(s) before making any investment decisions. Good luck to all 🙂

~George

Quietly The VIX Elevates…

Posted on by George Mahfouz

Over the past week the CBOE Market Volatility Index aka the VIX (see chart below) has risen over 35%. Not too surprising considering the upcoming elections and the daily rhetoric that has been hitting the wires. What is surprising to me is that even though volatility has spiked recently, the markets have not really dropped. Isn’t how this is supposed to work? Increase in vol equals lower stock prices? The Dow Jones Industrial Average (chart), the S&P 500 (chart) and the Nasdaq (chart) all remain within striking distance of all-time highs and so far these key indices do not seem to be too bothered by the daily political headlines. Even Friday’s surprising if not shocking news that F.B.I. director James Comey has re-opened the Hillary Clinton email case could not rattle the markets. Although this particular headline did send stocks sharply lower in the late afternoon trading on Friday only to find support and close off of the lows.

I will say this; I am even more surprised that yesterday we did not see a sell-off in stocks after everyone had time to digest the news over the weekend. Stock market pundits continue to claim that the markets have priced in a Clinton victory and that her taking the White House in general will be bullish for stocks. I tend to agree with this however; my concern is will this be a “sell the news” event? I will also be paying closer attention to the polls this week to see if the Trump campaign closes in on the Clinton lead. This too can be a market moving dynamic. So as the VIX continues to lift and as we get closer to November 8th, I will error on the side of caution and lighten up any long positions and wait to see how this election plays out. Let’s also see how the markets react and respond to the election results and then come up with a game plan into year-end. Good luck to all 🙂

~George

VIX chart George Mahfouz Jr

A Spooky Time For Stocks?

Posted on by George Mahfouz

As Halloween fast approaches is this also a spooky time for stocks? Without question volatility has picked back up which to me is no surprise at all. Factor in all of the headlines out of Europe, earnings reporting season here at home and last but not least, the daily Hillary Clinton and Donald Trump show. It’s no wonder stocks are bouncing around all over the place. For the week, the Dow Jones Industrial Average (chart) closed lower by one half of one percent, the Nasdaq (chart) closed off by 1.5%, the S&P 500 (chart) -1.0% and the small-cap Russell 2000 (chart) lead the pack and finished the week lower by 2%. With all of the headlines and headwinds for that matter, I still remain quite impressed by the resiliency of stocks despite facing a multitude of uncertainties.

This upcoming week should also be a doozy as earnings reporting season kicks into high gear. Starting off the week, Bank of America (NYSE: BAC) will release their quarterly results followed by International Business Machine (NYSE: IBM), Goldman Sachs (NYSE: GS), Intel Corp (NasdaqGS: INTC), Johnson & Johnson (NYSE: JNJ), American Express (NYSE: AXP), Ebay (NasdaqGS: EBAY), Morgan Stanley (NYSE: MS), American Airlines (NasdaqGS: AAL), Microsoft Corp (NasdaqGS: MSFT), Paypal Holdings (NasdaqGS: PYPL), Verizon Communications (NYSE: VZ), General Electric (NYSE: GE), Honeywell (NYSE: HON) and McDonald’s Corp just to name a few. Expectations for this earnings reporting season is subdued and any upside surprise could bode well for sentiment during these volatile times.

Let’s take a quick look at the technical shape of the aforementioned indices and all but the small-cap Russell 2000 appear to be finding support either at their 50-day or 20-day moving averages.  The small-cap Russell 2000 (chart) does appear to be breaking down at an accelerated rate however, it does appear that the 1200 level of the Russell 2000 should be met with a bit of support.

Both Paula and I wish everyone a very safe and Happy Halloween and good luck to all. 🙂

~George

 

 

Uncertain Times And Near Record Highs!

Posted on by George Mahfouz

Despite the uncertain times we find ourselves in vis-à-vis the upcoming presidential election, the Deutsche Bank balance sheet and liquidity concerns and the upcoming third quarter reporting season, stocks continue to defy the odds and remain within striking distance of all-time highs. The Dow Jones Industrial Average (chart) closed the third quarter at 18308, the tech-focused Nasdaq (see chart below) closed at 5312, the broad based S&P 500 (chart) finished the quarter at 2168 and the small-cap Russell 2000 (chart) closed at 1251.

I am truly amazed how strong the markets have been all things considered. We did see volatility spike in September which was no surprise. However, what was surprising is how short lived it was especially with how much concern and risk there is out of Europe and in particular Deutsche Bank. A couple of weeks ago the U.S. Department of Justice announced they were seeking a $14 billion dollar fine to settle Deutsche Bank’s mortgage lending activities during the 2008 housing crisis. Shares of Deutsche Bank stock plummeted on the news and raised concerns about the solvency of the bank. Stocks did react to the news but have seemingly shrugged off this potential risk to the markets. Furthermore, stocks so far have also shrugged off the uncertainty due to the upcoming presidential election. Monday’s presidential debate sparked controversy as to who won it, but it is clear that the markets saw that Hillary Clinton won the first round.

As we now enter the month of October, without question the headlines and chatter will only increase as we get closer to election day which is November 8th. I am expecting volatility to not only increase but to last longer than usual due to the amount of news flow that is forthcoming which includes the launch third quarter earnings reporting season. What I do in this type of market environment is tune out the noise and stay focused on the fundamentals and technicals of select stocks and indexes. I seek out and identify market dislocations including overbought and oversold conditions. My assumption is that as we get in the thick of third quarter earnings reporting season, overbought and for that matter oversold opportunities will present themselves. Good luck to all 🙂

~George

 

nasdaq chart george mahfouz jr

As Promised, Vol Is Back!

Posted on by George Mahfouz

We knew it was only a matter of time. After trading in the most narrow range for the better part of the summer the VIX (see chart below) which is the ticker for the Chicago Board Options Exchange Volatility Index spiked this week over 60%!  This on fears that monetary policy changes are forthcoming here in the United States and abroad, especially as it pertains to interest rates. How is this a surprise though? There is not a day that goes by, in fact there is not an hour that goes by without headlines coming out pertaining to the Federal Reserve and what they will or will not do with interest rates.

Look my view is simple, count on it! Count on central banks changing their position on interest rates at some point in time. What amazes me is how much the markets and investors have become so reliant and seemingly make every investment decision based on whether interest rates remain near zero or begin to rise. How about this concept? Take a look at the premiums the markets have enjoyed over the past several years and minus that out. Then in my humble opinion we get back to fair value in stocks and markets. Although this has been one of the most profound bull markets in history, at some point in time equities are going to have to get off of the dependence on central bank accommodations. I look for ward to the day that we will be able to properly evaluate stocks and asset classes based on their respective fundamentals not on Federal Reserve policies.

Until then, the bulls can continue to enjoy the ride they have been on and I will continue to pay close attention to overbought and oversold conditions. With volatility back, this does create opportunity for the trader that is not too concerned with valuations. However, I expect that in the not so distant future, valuations will actually matter again. Good luck to all 🙂

~George

VIX chart George Mahfouz Jr