Ben Bernanke

What Correction?

Posted on by George Mahfouz

I think it’s safe to say that the bulls took back control of the stock market, at least for now. After what seemingly was the beginning of a meaningful market correction in late January, stocks closed the month of February at or near record levels. For the month, the Dow Jones Industrial Average (chart) finished up 3.96%, the tech focused Nasdaq (chart) closed up almost 5%, the broad based S&P 500 (chart) closed at a new record high of 1859.45 and was up 4.3% in February, and the small-cap Russell 2000 (chart) finished the month in the green by 4.6%.

So what changed from the apparent sell-off in late January to today? In my view, absolutely nothing. We still have a very accommodative Fed, interest rates remain near zero and a new Fed chairwomen that essentially emulates the former head of the Federal Reserve Ben Bernanke, and his policies. Hence, markets remain flush with cash with no where else to go but into higher yielding assets. This in my humble opinion is why equities snapped back from their January declines and why new highs are occurring. The bears are wondering how much longer can this go on without sparking a potential problematic inflationary environment. The bears are also growling about the bubbly type market we find ourselves in with valuations beginning to get stretched a bit and the apparent stratospheric $19 billion price tag that Facebook (NasdaqGS: FB) recently paid for the 55 employee app company WhatsApp. Then you have electric car maker Tesla this week receiving a price target boost from Morgan Stanley (NYSE: MS) to $320 dollars, which is more than double what Morgan’s previous target price was. Other data supporting the bear thesis is margin interest remains at all time highs and the retail individual investor is coming back to life according to online trading discount brokers TD Ameritrade (NYSE: AMTD) and Charles Schwab (NYSE: SCHW) which are seeing a surge in trading activity. Some pundits argue that this is the type of market behavior that is conducive with market tops. All valid points. My take is both the bulls and bears have valid points, but personally I cannot bet against the power of the central bank and their incessant support of the markets. When and only when the asset purchase program concludes and when interest rates begin to rise, we can then have a different type of discussion.

That said, we can easily see pullbacks and corrective type actions in the marketplace like we witnessed in late January. When volatility does come back, I would expect a similar pattern of market participants coming in looking for potential bargains, and thus placing yet another floor under these markets. On the technical front, it appears that all systems a go with none of the key indices in overbought territory yet according to the Relative Strength Index (RSI) however, yesterday we did see a “quasi-reversal” of sorts in where we closed well below the sessions highs after the S&P 500 (chart) hit an all time intraday high. This reversal was apparently due in large part to the increasing tensions in the Ukraine late Friday afternoon, which is something I will pay close attention to next week.  In closing, whether you are bullish or bearish, make sure to always consider having protective stops in place with your positions which is designed to protect your portfolio against unexpected losses.

Have a great weekend 🙂

~George

Back on track…

Posted on by George Mahfouz

Despite some market jitters and a pullback in June, stocks are right back in bull mode with the Dow and S&P closing at new highs. For the week, the Dow Jones Industrial Average (chart) closed up 2.17%, the S&P 500 (chart) +2.96%, the Nasdaq (chart) +3.47% and the small-cap Russell 2000 (chart) closed the week out up 3.10% also closing at an all time high. These impressive weekly gains were spurred on by Ben Bernanke’s reassurance that the fed’s easy monetary policies will continue for the foreseeable future.

Once again the mettle of the market will be tested this week with Q2 earnings reporting season kicking into high gear. Here are some of the companies that will report their second quarter results: Citigroup (NYSE: C), Coca-Cola (NYSE: KO), Goldman Sachs (NYSE: GS), Johnson & Johnson (NYSE: JNJ), The Charles Schwab Corporation (NYSE: SCHW), Yahoo (NasdaqGS: YHOO), Bank of America (NYSE: BAC), American Express (NYSE: AXP) and Ebay (NasdaqGS: EBAY), International Business Machines, (NYSE: IBM), Intel (NasdaqGS: INTC), United Health (NYSE: UNH), Google (NasdaqGS: GOOG) Blackrock (NYSE: BLK), Microsoft (NasdaqGS: MSFT) and Morgan Stanley (NYSE: MS).

So as you can see, next week’s earnings reports will take center stage and should guide our markets as we continue to go through the summer months. I look for volatility to increase which is typical with earnings reporting season. Good luck to all.

Have a great week 🙂

~George

Stocks soar, the Fed pulls out all the stops!

Posted on by George Mahfouz

I know we keep talking about the Federal Reserve, but on Thursday Ben Bernanke announced the mother of all stimulus programs. The new stimulus package includes $4o billion a month to be injected into the economy  and a promise that it won’t stop until the unemployment picture dramatically turns around. Never before has a central bank made such a large extended commitment and then tie it to the jobs market.

On the heels of this announcement, stocks soared with the Dow Jones Industrial Average (chart) finishing the week up 2.15% and is now up year to date 11.26%. The Nasdaq (chart) closed the week up 1.52% and year to date is up a staggering 22.22%. The S&P 500 (chart) on the week marched 1.94% higher and so far this year is up 16.55%,  and last but not least, the Russell 2000 (chart) small-cap index closed up 2.66% and is tracking a year to date gain of 16.71%

Yes I triple confirmed the above statistics and there are no typos. Now the multi-million dollar question is  “is this bull market out of breath?” It’s only natural to think that this tape is overdone and is well overdue due for a healthy 5% or even 10% pullback? This may especially ring true with the most recent middle east tensions, the upcoming third quarter earnings reporting season and of course the U.S. presidential elections all on the horizon. That said, with the Federal Reserves unprecedented commitment to truly do whatever it takes to get this economy and now the unemployment picture completely turned around, I would think that any pullbacks would provide excellent entry points. Whatever you choose to do, make sure to always consult with a professional investment advisor.

Have a great weekend 🙂

~George

Rare August gains for key indices…

Posted on by George Mahfouz

The four most followed indexes produced unlikely gains for the month of August. Typically the dog days of summer is seasonally weak for equities, but not this year. For the month of August, the Dow Jones Industrial Average (chart) closed up 0.63%, the Nasdaq (chart) +4.34%, the S&P 500 (chart) +1.98% and the small-cap Russell 2000 (chart) finished the month up 3.2%.

Stocks once again benefited by the Fed promising to take further steps to help boost the economy if needed. Speaking in Jackson Hole, Wyoming, Ben Bernanke reiterated his concern over the state of the economy and that the central bank is prepared to act if warranted. So how will this mantra play out for the month of September?

September is typically one of the weakest months of the year for equities, however, could this month buck the trend just like August did? We should find out in short order with the release of the unemployment report next Friday. Talk about market and political implications! If the job market continues to deteriorate, you better believe this will become even more of a focal point as the election approaches. A further decay in the unemployment picture should also give the fed confirmation to further stimulate the economy. If this scenario plays out, one could surmise that the markets would continue to lift and that Mitt and Ann Romney may be soon moving to Pennsylvania Avenue.

I hope everyone has a safe and enjoyable Labor Day weekend 🙂

~George

Stocks lower on the week…

Posted on by George Mahfouz

Despite a rally on Friday, the benchmark indexes finished the week in the red. The Dow Jones Industrial Average (chart) fell 0.88%, the Nasdaq (chart) -0.22%, the S&P 500 (chart) -0.50% and the Russell 2000 (chart) -1.31%. The market action this week broke a six week stretch of gains.

What helped fuel the market on Friday was Ben Bernanke’s comment in a letter that the Fed has more room to add yet even more stimulus if the economy needs it. Is it me or are we all a little exhausted by the same regurgitation of the Fed coming to the rescue of the economy and the markets? What’s clear is investors are are seemingly and exclusively looking to invest in stocks and bonds based on what the central banks will or will not do. To me this platform has now become overkill and I am going to be very cautious on the long side of things going forward. That said, if you have been short the market based on economic and corporate fundamentals, theoretically you have been on the right side of the trade, however, chances are your short thesis has hurt your portfolio because of the accommodative banking policies from around the world.

In my humble opinion this cannot go on forever and I certainly do not want to be long the market when the policymakers say “that’s enough!” Good luck to all.

Have a great weekend 🙂

~George