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 ūüôā

~George

Risk On Remains On - Paula Mahfouz

 

Retail Stocks Retreat!

So does this mean the consumer have closed their wallets? The SPDR S&P Retail ETF (Symbol: XRT) which has over 500M in net assets with holdings in a wide variety of the retail space has lost over 10 percent over the past few weeks with 4.4% of this sharp decline ¬†occurring last Wednesday alone. This was the largest one day drop for this widely followed retail stock ETF in almost 5 years.¬†Some individual retailers have even fared¬†worst over the past month or so as their earnings reports and outlooks have been bleak to say the least. Just take a look of the charts of Macy’s (Symbol: M) and Nordstrom Inc.¬†(Symbol: JWN) and you can see just how much these retails missed their earnings numbers and well as how they guided for the upcoming quarter and second half of the year.

No question the retail sector sell-off had an effect on the overall markets with the Dow Jones Industrial Average (chart) closing down over one percent on the week, the Nasdaq (chart) finished lower by one half of one percent, the S&P 500 (chart) closed lower by the same margin and the small-cap Russell 2000 (chart) closed the week out down over one percent.

As mentioned in my previous blog,¬†the technical shape of the aforementioned indices appear to be breaking down and this past week did not help at all. So now it’s not just the 20-day moving averages that have been breached,¬†each of these indexes have all now broken through their respective 50-day moving averages. What’s more, is we do not find ourselves in an oversold condition according to the relative strength index also known as the RSI. So with¬†no real market moving catalysts this upcoming week,¬†it is possible that the current selling pressure¬†continues until oversold conditions occur or other support levels are hit. Good luck to all.

~George