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

 

 

All Key Support Levels Being Tested…

Posted on by George Mahfouz

As the first quarter of the year came to a close, all of the major averages key support levels are being tested. 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 here and below) have all experienced selling pressure for the better part of the year. Ever since the new administration has taken office, the stock market has been selling off to the point of the 200-day moving averages of the aforementioned indexes have all been breached. It’s no secret that the constant flow of tariff news coming out of Washington is one of the main reasons why stocks are selling off. Markets do not like surprises and/or uncertainty and we have had more than enough lately.

As mentioned above, not only are the major averages support lines being tested, all of them have breached their 200-day moving averages which historically is a major support and/or resistance line. Please note, key support lines such as the 200-day M/A can indeed be breached and that doesn’t necessarily mean the end of the world. Major support lines can break temporarily before a reversal ensues. I am not suggesting this will occur, what I am saying is that just because a support line has been breached, it does not mean it’s a permanent situation.

What any market participant looks for and asks in market environments such as the one we are in now is; “when will the selling pressure stop?” Frankly what I am looking for is an end to the daily tape bombs on tariffs, the economy, consumer confidence etc. Things should begin to calm down once the markets understand how, why and when these dramatic policy changes will provide more benefits than drawbacks. We are going to need time to see how these tariffs will play out or just maybe our government will start changing its tune.  Good luck to all 🙂

~George

 

 

Stocks Are Jittery…

Posted on by George Mahfouz

I think it is apparent now that stocks are jittery! The constant barrage of chaos coming out of Washington is catching up to stocks and crypto alike. Over the past weeks volatility has reared its head whipping around the stock market and other asset classes.

The Dow Jones Industrial Average (see chart here) closed the month of February at 43840, the S&P 500 (see chart here) ended the month out at 5954, the Nasdaq Composite (see chart here) finished at 18847 while the small-cap Russell 2000 (see chart here) closed the month out at 2163.

Stocks never like uncertainty and unfortunately we have now entered a period of abundant uncertainty. The uncertainty of how the new tariffs our country is imposing on our trade partners and how that will impact our country, how the 10’s of thousands of jobs that are being eliminated will impact our economy and labor market, to the threats of invading and taking over other countries. It is no wonder why the volatility index: Symbol: $VIX (see chart here) has spiked recently. So what in the world is going on? Pundits are scratching there heads as to why our government is now pretty much bulldozing so many key areas of the economy and key relations that are crucial for sustainable economic growth. I don’t want to get too political here but what is for sure, markets do not like uncertainty and that is showing up now.

As I look at the technical shape of the stock market, the Dow Jones Industrial Average (see chart here) is smack in the middle of its 50-day moving average after a pullback of over 1000 points. The S&P 500 (see chart here) is now trading below its 50-day moving average with its 200-day M/A a little over 100 points away. The Nasdaq Composite (see chart here) on Friday actually touched its 200-day M/A and bounced, while the small-cap Russell 2000 (see chart here) has closed below its 200-day moving average.

Let’s see how the month of March responds to the recent market action and hopefully the volatility we saw in February will subside.

Good luck to all 🙂

~George

The Tariff Trade…

Posted on by George Mahfouz

The tariff trade is now in play. Stocks ended the month lower in response to the White House confirming that tariffs on Mexico, Canada and China begin today. This has been no secret that tariffs would be imposed on select countries, but I guess reality sunk in went in was confirmed yesterday.

The Dow Jones Industrial Average (see chart here) closed the month of January down 337 points, the S&P 500 (see chart here) closed lower by 30 points, the Nasdaq Composite (see chart here) gave up 54 points and the small-cap Russell 2000 (see chart here) closed the month of January down around 20 points. Despite yesterday’s pullback, the month of January overall was a strong month for the markets.

When countries impose tariffs on each other consumers lose. The costs of tariffs typically is handed down to the consumer which will impact consumer spending and the economy. From fruits and vegetables, to lumber, to oil to cement, etc. the list goes on. Seemingly everything is about to get more expensive which of course will lift inflation. What a minute, aren’t things supposed to get cheaper and isn’t inflation supposed to be coming down? Clearly that isn’t happening now. Let’s hope that the political chess game does not go on for an extended period.

The sectors and stocks that will be most impacted by these newly issued tariffs are consumer discretionary stocks, materials stocks, the industrials, healthcare stocks and technology stocks. Yea, that’s pretty much our whole economy. So, time will tell how the markets will continue to react but it is pretty clear what will be happening here in the short term.

As I look at the technical shape of the major averages, they all remain solidly above their 200 and 100-day moving averages, but with yesterday’s selloff the key indices fell to their 20-day M/A and found support there before the market closed. Next week we will see if the support level can hold.

Good luck to all 🙂

~George

 

 

2024, A Record Setting Year!

Posted on by George Mahfouz

The year 2024 was a record setting year for stocks! The Dow Jones Industrial Average (see chart here) set record high in 2024 trading over the 45000 mark, the S&P 500 (see chart here) also set a record high before year end trading over the 6000 mark. The Nasdaq Composite (see chart here) joined the record high club as well trading over the 6000 mark as did the small-cap Russell 2000 (see chart here).

As 2024 unfolded, seemingly record high after record high was hit. Furthermore, as the S&P 500 (see chart here) hit an all-time high in December trading up over 23% on the year, The S&P in 2023 also notched record gains so between 2023 and 2024 the S&P 500 is up over 50% in total over the past two years. Needless to say, I think we may be a bit overbought, especially as I look at the price to earnings ratio of the S&P 500 which closed the year just under a 30 p/e ratio. Now to put this into perspective, the S&P 500’s historical price to earnings ratio average trades in the 15-17 p/e zone. Yes, the current price to earnings ratio of the S&P 500 is nearly twice the historical average.

Something must give here in 2025. Either the economy takes off to where corporate America can earn the right to maintain a 30 p/e, or the markets eventually find a way to revert to the mean. Why have we seen such a strong performance in stocks and other asset classes? Simply put, the liquidity that has been pumped into the system for years now continue to be put to work in the markets. Plus, when you add in the policies of the incoming administration, especially on the tax rate side of the equation it’s no wonder why we keep setting records across the board.

Overall, I am optimistic here in 2025 pertaining to stocks, the economy and how the Federal Reserve will manage interest rates. However, I would not be surprised to see an increase in volatility especially as everyone awaits to see how this new administration will execute.

Happy New Year and good luck to all 🙂

~George

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