markets

A Volatility Spike!

Posted on by George Mahfouz

A volatility spike in November spooked plenty of investors which sent the markets into a tailspin! Volatility (see chart here) woke up last month as the markets digested the constant news flow and fears of an A.I. bubble (click here). This fear also spilt over into the crypto space where we saw Bitcoin, Ethereum and other Altcoins crash as much as 35% last month. For crypto, this is not an unusual drawdown, many times over a 30 plus percent correction has occurred in this sector. What’s different this time was the fear mongering over an A.I. bubble which has been a daily occurrence. This dynamic sent the tech sector down as a whole while also dragging crypto coins and crypto related stocks with it.

What was good to see for the bulls last week was the rally that occurred during the Thanksgiving holiday shortened trading week. This rally which has provided some calm to the market has once again taken the S&P 500 (see chart here) close to its record high. I was just happy to see a short-term bottom seemingly put in from last month’s sell-off.

As we enter the final month of the year the question now on every investor or traders mind is “can the markets muster up a Santa Clause rally?” Each year this is what the bulls hope to see and that is a year-end rally that takes stocks higher. The case for a Santa rally can be made. First, we have the Federal Reserve Open Market Committee interest rate policy meeting coming up on December 9th & 10th. All eyes and ears will be on this meeting to see not only if the Fed will cut interest rates, but even more so, the messaging and tone that comes out of the meeting on future rate cuts. One could say it was the hawkish comments (click here) made by the Federal Reserve chairman Jerome Powell that spooked investors which then spooked the markets and spiked volatility. In the last Fed meeting Chairman Powell stated there was no assurance of a December rate cut and that they will rely on the economic data to provide the necessary guidance as to cut or not.

Suffice to say, the economic data coming out continues to favor a cut in December in which inflation seems to be at least pausing while the unemployment rate is going higher. These are the two key factors in whether the Fed will cut rates again in December.

Good luck to all 🙂

~George

 

Same Old, Same Old…

Posted on by George Mahfouz

It’s the same old, same old for the stock market. New record highs were set today on the S&P 500 (see chart here) and the Nasdaq Composite (see chart here)! Wait a minute, didn’t the government partially shutdown earlier this week? And yet the markets are still hitting all-time highs! Well hopefully the gov. figures this out as quickly as possible so that what is shut down can reopen. As the S&P 500 and the Nasdaq hit all-time highs today, both the Dow Jones Industrial Average (see chart here) and the small-cap Russell 2000 (see chart here) are within striking distance of their respective all-times highs as well.

So, what in the world is going on with our markets? For starters, corporate earnings for the most part have exceeded expectations up to this point despite the swath of tariffs that have been imposed this year. Secondly, the Federal Reserve cut interest rates last month and have signaled they are prepared to reduce rates further if needed. From the looks of things, lower rates are becoming more obvious as the job market continues to struggle. Normally, I would be concerned of how frothy the markets look and there are pockets of the market that are frothy. However, if corporate America continues to deliver better than expected earnings, coupled with a more accommodative Federal Reserve, the chances of stocks going higher into year-end is a strong possibility. I am not suggesting this will be the case, but I am beyond impressed with how resilient the stock market continues to be.

As I look at the technical shape of the key indexes the Dow Jones Industrial Average (see chart here) and the Russell 2000 (see chart here) are comfortably trading above their 20-day, 50-day and 200 day moving averages. Furthermore, both indexes are below the 70 value level of the Relative Strength Index aka the RSI. The 70-value level of the RSI is considered entering overbought territory. So, it appears that these two indices have room to run. A bit of a different story with the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) whereas today both have tapped the 70 value level of the RSI. Please note that with the RSI  it is not uncommon for stocks or indexes to go past the initial overbought level of 70 and proceed to as high as 80 and in some instances the 90 value level of the RSI. An 80 and especially a 90 value level is viewed as extremely overbought according the RSI principles. No matter what the case is, this bull market seemingly is not tired yet.

Good luck to all 🙂

~George

What Happens Next?

Posted on by George Mahfouz

What happens next is the question that just about everyone is asking now? After the onslaught of tariffs and executive orders, the markets have reacted accordingly. Heavy selling pressure has gone on since mid-February with a couple of strong bounces in between. Currently we find ourselves in yet another bounce back from the latest stock market selloff which occurred yesterday. For those who love volatility and trade around vol, you are having a field day, and this is your time. For those who have long term investments I think it is safe to say the last couple of months have been unnerving to say the least.

Over the past 25 plus years I have witnessed multiple markets and backdrops such as the one we have today however, those were for different reasons. The over exuberant dot-com bubble and the 2008 market crash when the banking system was on the brink of a total collapse. Today, we are not in this type of environment, but nonetheless, the tariff initiative needs to be monitored and managed properly so that we don’t fall into a scenario that would impact the markets long-term. I am hopeful that both sides in each tariff dynamic can come to a meeting of the minds.

As I look at the major averages I am seeing support in these selloffs, but I am also seeing resistance when stocks do bounce and try to restart an uptrend. I think we will be in this type of market for the foreseeable future whereas volatility will remain in play. For market vol to abate, the markets need to see how these tariffs will play out or if they will be adjusted so that agreements can be had. It appears adjustments will be happening.

The Dow Jones Industrial Average (see chart here) closed the month of April at 40,669, the S&P 500 (see chart here) closed at 5,569, the Nasdaq Composite (see chart here) 17,446 and the small-cap Russell 2000 (see chart here) finished the month of April at 1,964. Let’s not forget that the major averages have enjoyed record after record years before this disruption and quite honestly, weren’t we due for some kind of correction? Think about that and from my vantage point stocks and indexes are not acting too badly all things considered. 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

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

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

Record Highs For Stocks!

Posted on by George Mahfouz

Record highs for stocks are hitting the tape with both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) hit all time highs yesterday. The Dow Jones Industrial Average hit a high of 38,588 while the S&P 500 traded at 4931 before closing slightly lower. However, the Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) did not hit their all-time highs but the uptrend in those indexes continue.

So why are two of the major averages at all-time highs? For one I think the markets have been anticipating the Federal Reserve to start cutting interest rates this year. However, Fed Chair Jerome Powell yesterday said rate cuts in the near term is not likely. Suffice to say the markets did sell off yesterday after Chair Powell’s remarks. The other factor driving stocks higher is the undeniable strength our economy and the job market. The latest Gross Domestic Product (GDP) report surprised analysts yet again. Economists were expecting the GDP to come in at an annualized growth rate of 1.5%. Instead, the economy grew on an annualized basis of 3.3%. I’d say that’s a beat! The GDP is a measure used to evaluate the strength of the economy. The GDP is the total market value of the final goods and services produced in a given country.

Going forward without question the strength of the economy and job market, along with inflation, will be guiding the Federal Reserve as to the timing of when they will begin to cut rates. Until then, the strength of companies’ earnings results, geo political factors and our own political backdrop should be the catalysts that determine where the markets trade.

Last but not least, the technical backdrop of the key indexes is in decent shape. Yes, the Dow Jones Industrial and the S&P 500 did breach the 70 RSI level briefly but has retreated some since going into overbought territory. All in all, from a technical standpoint, I do not see any alarming trends.

Good luck to all 🙂

~George

 

 

Cheers To The Markets!

Posted on by George Mahfouz

Cheers to the markets and what a year for stocks! 2023 turned out to be a spectacular year for the stock market as not many expected the markets to rip-roar as it did last year. The Dow Jones Industrial Average (see chart here) finished the year up almost 14 percent. The S&P 500 (see chart here) closed the year up 24%. The Nasdaq Composite (see chart here) closed the year up a whopping 44 percent. A big part of the Nasdaq’s eye-popping performance was how the “Magnificent 7” performed. For those of you who do not know who the Magnificent 7 are, it is the big tech group made up of Apple (NasdaqGS: AAPL), Microsoft (NasdaqGS: MSFT), Google owner Alphabet (NasdaqGS: GOOGL), Amazon (NasdaqGS: AMZN), Nvidia (NasdaqGS: NVDA) and Meta Platforms (NasdaqGS: META) and Tesla (NasdaqGS: TSLA). Finally, the small-cap Russell 2000 (see chart here) closed the year up 15%.

Many stock market experts did not expect such a stellar year for stocks. Let’s dig in and see what happened. For starters, inflation itself retreated faster than anyone expected which now has the Federal Reserve speaking to cutting rates in 2024. This metric alone is very bullish for stocks. Then factor in how strong the economy has been it’s no wonder we are at or near all-time highs. What’s equally impressive is how the markets have shrugged off the geopolitical backdrop. From two wars that seemingly have no end is sight, to the U.S. political divide, to China’s stagnant economy, nothing seems to be bothering the markets, at least not yet.

As we now look forward to 2024, I think we are in for a doozy of a year, at least from a volatility standpoint. We are also in an election year, and this alone should create higher volatility. I would also expect that after such a strong performance in 2023 that a pause and/or even a correction of some sort could potentially be in the cards for the markets in general.

Wishing everyone the healthiest, happiest, and most prosperous new year 🙂

~George

The Bounce Was Indeed Real…

Posted on by George Mahfouz

In my November 1st blog, I asked the question was the bounce real? Fast forward to today and indeed the bounce the markets experienced in the early fall not only held but took off to and are nearing all-time highs. The Dow Jones Industrials (see chart here) closed yesterday at 36,245, the S&P 500 (see chart here) closed at 4,594 the Nasdaq Composite (see chart here) closed at 14,305 and the small-cap Russell 2000 (see chart here) finished the month out at 1,862.

It’s truly incredible to see how resilient the markets are considering the current interest rate environment and how inflation continues to impact the consumer. Rising interest rates tend to impact the stock market negatively and inflation impacts the consumer negatively too. So why are the markets approaching all-time highs? Could it be that the economy grew at a faster rate in the 3rd quarter than previously reported? Or could it be that the Federal Reserve may be ready to slow down or pause its current interest rate policy? I am not sure on either front, but what is apparent is that the markets are brushing off the current backdrop of Fed’s economic policy and the ongoing inflationary pressures. One thing I have learned over the years is the trend is your friend and these markets continue to trend up.

That being said, let’s look at a key technical indicator that many traders and investors rely on to see if we are approaching or at overbought conditions. According to the Relative Strength Index aka the RSI both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) have crossed and are trading above the 70 value level. The 70-value level according to the relative strength index is the beginning of overbought conditions. The Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) are fast approaching the 70-value level. I do want to point out that stocks and indexes can remain overbought for extended periods of time, but I would not be surprised if we see somewhat of a pause or possibly a reversal here in the month of December to this very impressive rally we are currently in.

It’s always a good idea to consult a certified financial advisor before making any adjustments to your portfolio. Good luck to all 🙂

~George

Rally Caps Are On!

Posted on by George Mahfouz

After breaching all moving average support lines including the 200-day, the major averages have their rally caps on! The Dow Jones Industrial Average (see chart here) finished the month of April on a high note. The same can be said for the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here and below).

After a slow start to the year including a brief dance with a bear market, stocks have rallied recently to turn green. Even the small-cap Russell 2000 is now green for 2023. So, what is causing the renewed bullish action? In part I think a stronger than expected first quarter earnings results have played a role in this latest bull run along with the Federal Reserve potentially slowing down their interest rate hike program. Positive earnings surprises have come from the health care sector, consumer discretionary and Industrials sector. It’s not just better than expected earnings results, it’s the top line revenue numbers that are also coming in stronger than expected. These data sets are great to see but we still do have some headwinds with inflation remaining high which means the Federal Reserve may not be quite done yet with higher rates.

When I take a look at the technical shape of the markets, there are some encouraging signs that may play a role in the continuation of this latest bull run. It appears that the Dow Jones Industrial Average (see chart here) is breakout out of a month’s long trading channel, as is the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) also appears to be breaking out. I also see that the aforementioned indexes have not yet breached the 70 value level of the Relative Strength Index aka the RSI. The 70-value level of the RSI is considered the beginning of overbought conditions and we are not there yet.

Let’s see how the month of May goes and we will check back on the technical shape of the markets in June. Good luck to all 🙂

~George

Rally Caps Are On! - Paula Mahfouz