Record Highs For Stocks!

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 πŸ™‚

~George

 

 

Who’s Ready For The New Year?

After one of the weakest market performances since 2008, who is ready for the new year? I know I am!

Let’s take a look at how the major averages closed the year out. The Dow Jones Industrial Average (see chart here) finished lower by 8.78%, the S&P 500 (see chart here) shed almost 20%, the Nasdaq Composite (see chart here) fell a whopping 33% and the Russell 2000 (see chart here) closed the year down over 21%. Despite the bear market we now find ourselves in let’s not forget of how we got here. For the past 10 plus years and especially the past 3 years, central banks from around the world flooded the system with enormous liquidity. This liquidity came in many forms and with essentially charging little to no interest. The Federal Reserve Banks from around the globe started these programs when the 2008 financial crisis hit and for the better part of 15 years had not let up. What changed their position is how inflation took off this year to rates not seen in over 40 years.

Fast forward to today and we now have watched the Federal Reserve raise interest rates multiple times over the past several months and along with that taking the stock market with it. That said, I don’t blame the Fed for raising rates, in fact some pundits might argue as to why it took so long. Oh yea, a once in a century global pandemic shocked the world and the economy. So, what should have been a policy shift years ago became extended stimulus parade of liquidity into the system. Which by the way was very needed. Ok, so let’s not panic as to what occurred in the markets last year, from my vantage point this appears to be simply a function of interest rates and markets beginning to normalize.

Wishing everyone the healthiest, happiest, and most prosperous New Year πŸ™‚

Cheers,

~George

 

Nowhere Near Raising Rates…

In the words of Fed Chairman Jerome Powell “the Fed is nowhere near considering raising rates”! Last Wednesday the Federal Reserve held its FOMC meeting where it kept interest rates essentially at zero. This despite inflation seemingly everywhere along with a strengthening economy. So, what gives? Without question the most recent spike in Covid cases across our country continues to keep the Fed at bay pertaining to rates. I do get the thinking and strategy; however, I am a bit concerned of inflation overheating and the continuation of record setting asset prices.

Last week three of the four major averages hit all-time record highs. The Dow Jones Industrial Average (see chart here) hit an all-time high of 35171. On Thursday the S&P 500 (see chart here) notched a record high of 4429 and the Nasdaq Composite (see chart here) booked a record high of 14863. The small-cap Russell 2000 (see chart below) is the one index that is lagging a bit but the uptrend there remains intact.

As mentioned above, I am a bit concerned as to the non-stop record setting ways with asset prices. There seems to be a growing concern on the street about the potential ramifications of easy monetary policies that have been in place for over a decade and counting. There is no question interest rates need to go up and the money printing needs to abate. Yes, we are in a once in a century pandemic and there has been no choice other than to flood the markets with stimulus and support. However, this cannot go on forever.

That said, as I look at the technical shape of the aforementioned key indexes, there are currently no problems there. Three of the four indices that just set records last week all remain above their respective 20-day, 100 and 200-day moving averages. Also, these indexes are not yet overbought according to the relative strength index aka the RSI. So, folks it appears the record setting ways of our markets should continue in the near term. Make sure to always consult with a certified financial advisor(s) before making any decisions and/or adjustments to your investment strategies.

Good luck to all πŸ™‚

~George

Nowhere Near Raising Rates - Paula Mahfouz

A Stunning Comeback!

Stocks pulled off one of the most stunning comebacks in recent memory. Despite Covid-19’s rapid acceleration which is afflicting millions, the stock market made one of the sharpest and quickest recoveries off of the bottom we hit in late March. The Dow Jones Industrial Average (see chart here) gained over 11% in April, the S&P 500 (see chart below) posted a 12.7% gain, the Nasdaq Composite (see chart here) closed up over 15% and the small-cap Russell 2000 (see chart here) posted a whopping 22% gain in the month of April. Let’s not forget we are still off of the all time highs set earlier in the year but I don’t think anyone expected the magnitude of the rally that we just witnessed. There is no question that hopes of re-opening the economy and the latest advancements on therapeutic treatments and vaccines also played a role in the April rally.

Let’s look at it deeper than the just scientific advancements. The Federal Reserve actions and the recent stimulus packages issued by our government has also played a significant role in the eye-popping rally. With all of constant news flow and developments that comes out on Covid, I do think it is hard to realize how impactful the government stimulus packages and the new Federal Reserve stance is and what it does mean to the economy and markets now and going forward. I think it is fair to assume that once there is a definitive and stabilizing solution for the Covid crisis, that our economy and markets should have no problem taking off again. Until then, let’s all pray for a rapid solution to this ugly virus that has wreaked havoc on society. I do believe and have always believed in humanity and for science to lead the way.

Let’s take a quick look at the current technical shape of the the key indexes. We can all expect the markets to pull back after such a sharp bounce back rally. This is the case as I write my blog today. The markets are pulling back to their 20-day moving averages. Typically the 20-day, 50-day and especially the 200-day moving average acts as near term support levels. Let’s see if the current 20-day moving average holds as a near term support level as we head into the weekend.

Good luck to all πŸ™‚

~George

A Stunning Comeback - Paula Mahfouz

 

 

First Rate Cut In Over A Decade!

Yesterday the Federal Reserve conducted its first rate cut in over a decade! Although widely expected, the markets were disappointed as to how Fed Chairman Jerome Powell signaled that this is does not necessarily mean more rate cuts are forthcoming. Chairman Powell’s statement sent stocks down sharply. The Dow Jones Industrial Average (see chart here) closed down over 330 points, the S&P 500 (see chart here) closed lower by 32.80, the Nasdaq Composite (see chart here) finished down almost 100 points and the small-cap Russell 2000 (see chart below) finished the day down 11 points. The markets were hoping that Mr. Powell would remain dovish and it was clear he was the opposite. That said, a rate cut is a rate cut and the intention is to keep the economy moving. Despite the rate cut move, The White House came out and complained about how Chairman Powell handled his statement and it is no secret that administration wants further rate cuts. I do think additional rate cuts may not be needed due to how Q2 earnings reporting season is going so far. The street was expecting an “earnings recession” at least in the last quarter. But as we are now half way through earnings reporting season, so far so good. There are not many earnings surprises to the downside and future guidance is not too shabby so far.

Let’s take a look at the current technical shape of the markets. The indexes have been going sideways as of late with the exception of yesterday’s selloff. That said, yesterday’s selloff did break the 20-day moving averages of the Dow Jones Industrials, the S&P 500 and the Nasdaq Composite, however, the small-cap Russell 2000 closed above its 20 day and actually demonstrated more relative strength than the other averages. A one day selloff does not necessarily mean the beginning of a new downward trend so let’s wait and see how the rest of earning reporting season goes and then we can assess how the back half of the year shapes up.

Good luck to all πŸ™‚

~George

Russell 2000 - Paula Mahfouz

 

 

One Hot June!

One hot June indeed and I do not mean the weather folks! Stocks and commodities went on a tear in the month of June logging the best June in decades for some of the indexes and other asset classes. The Dow Jones Industrial Average (see chart here) soared over seven percent last month. The S&P 500 (see chart below) hit an all time high in the month of June while both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) notched impressive gains as well. What’s more is both oil and gold surged right along side of the key indexes.

So why the rally? I think the answer is simply an easier monetary posture by the Federal Reserve. It is no secret that inflation is well in check and it is also becoming apparent that the U.S. job market is cooling off. Another factor for the Fed to consider is what impact would a full blown trade war with China do to the U.S. economy? This is why in my opinion we are seeing a continuing upward trend in our markets and that is a dovish Fed is usually very good for stocks. One other factor that will certainly weigh in is the upcoming earnings reporting season. Now that the second quarter of the year is in the books we will see how well corporate America did in Q2 as earnings reporting season gets underway this month. I will continue to look to monitor how “top-line” growth is faring.

Let’s take a quick look at the technical shape of the key indexes. After surging over 7% in June, the Dow Jones Industrial Average (see chart here) remains clearly above its 20-day, 100-day and 200-day moving averages as does the S&P 500 (see chart here). The Nasdaq Composite (see chart here) is in a healthy technical condition and last but not least, the small-cap Russell 2000 (see chart here) has broken above its key moving averages. This is a very good sign for stocks and furthermore none of indices are in overbought territory according to the principles of the RSI also known as the relative strength index.

Both Paula and I wish everyone a very safe and Happy 4th of July holiday πŸ™‚

~George

S&P 500 - Paula Mahfouz

 

 

 

 

Strong Economy Equals A Strong Stock Market!

The economy posted a 3.2% gain in the first quarter and as the saying goes, a strong economy equals a strong stock market! Is it any wonder as to why the Nasdaq Composite (see chart here) hit an all-time high on Monday! The same rings true with the S&P 500 (see chart below). The S&P 500 hit an all-time high on Monday as well. Now the Dow Jones Industrial Average (see chart here) has a bit more work to do in order to tap its own record as does the small-cap Russell 2000 (see chart here). However, I am sure the bulls will take 2 out of the 4 major averages setting all time highs. What is also helping the stock market is how the Federal Reserve has taken a cautious approach to raising rates any further. In fact, there are calls out of Washington DC asking the Fed to start lowering rates to stimulate the economy even further. Now I am not so sure that the Fed will accommodate Washington’s request, but I do think it is safe to say that we should not see a rate hike in the near future or maybe not at all for the rest of this year.

One note of caution to me is that with nearly half of corporate America reporting their Q1 earnings so far, we are seeing on average a year over year decline in earnings. There are still 100’s of companies set to report over the coming weeks but if this trend continues, this will be the first year over year decline in corporate earnings in years. I will be keeping an eye on this development.

The technical shape of the aforementioned indexes remain intact. The Dow, Nasdaq, S&P 500 and the Russell 2000 all are trading above their respective key moving averages. However, both the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) have entered into overbought territory according to the relative strength index also know as the RSI. That said, I would not be surprised to see at the very least some consolidation or an outright healthy pullback. Good luck to all πŸ™‚

~George

S&P 500 - Paula Mahfouz

The Economy Is Booming, But…

There is no question the economy is booming but what does this mean long term for stocks? When the economy is firing on all cylinders like it is now here in the United States one may think the stock market must be ready for its next leg up! Not so fast. Historically when the economy heats up and the unemployment rate becomes so low, that does not typically bode well for stocks. Why you ask? Simply put, the Federal Reserve does not want inflation to rear its head up and their main tool to avert inflationary pressures is to raise interest rates. As counterintuitive as it may seem, a strong economy and low unemployment may be the catalyst to put the brakes on this almost 10 year bull market run. That said, the major averages continue to show extraordinary resilience no matter what comes at it. The Dow Jones Industrial Average (chart) closed the week above 25,000, the S&P 500 (chart) finished the week at 2779, the Nasdaq Composite (chart), finished near its all time high and the small-cap Russell 2000 (see chart below) closed the week out a few points away from it’s all time high as well.

It is quite remarkable how the aforementioned indexes are behaving with all things considered. This past week the Federal Reserve raised interest rates again and signaled two more hikes this year and the trade war chatter and action with China and our own allies for that matter is accelerating. Just these two events alone show be putting selling pressure on stocks not setting new record highs as is the case this past week with the Nasdaq Composite (chart) and the Russell 2000 (chart). These indexes also remain well above key moving averages which at some point in time reversion to the mean should occur. I will be looking for opportunities on the short side but will continue to respect the fact that this years-long bull market remains intact at least from a technical standpoint. Good luck to all πŸ™‚

~George

george mahfouz jr - Russell 2000

 

Red Week For Stocks, Technicals In Play…

Stocks had a tough week pressured by the prospects of rising interest rates and political turmoil out of Washington D.C. On the week, the Dow Jones Industrial Average (see chart below) closed lower by 1.5%, the S&P 500 (chart) closed the week down 1.2%, the Nasdaq Composite (chart) finished lower by 1% and the small-cap Russell 2000 (chart)Β ended the week down around 1% as well. Despite a choppy and red trading week, all of the aforementioned indexes are still up on the year.

As we celebrate St. Patrick’s Day we find ourselves in a period of no real short term catalysts to steer the market in either direction other than the FOMC meeting next week. I don’t expect the Federal Reserve to surprise the markets with a larger than expected interest rate hike or change their view on interest rate policy this year. The inflation data continues to remain tame although the labor market is heating up. So what is going to drive stocks between now and Q1 earnings reporting season in April?

When we find ourselves in a period such as the one we are in, I focus in on the technical shape of the markets. And as you can see in the charts of the major averages, all of them are at theirΒ moving averages support. Whether it’s the 9 day, 20 day, 50 day, 100 or 200 day moving average, stocks and indexes typically respect and is supported by moving average support lines with the 200 day moving average being the most reliable out of all of them. This doesn’t mean that this favorite technical indicator of most market technicians is infallible, but it sure has a history of being an effective tool when navigating the markets. All things considered, including the seasonality of the markets, I do expect that these support levels should hold at least until Q1 earnings reporting season. If the moving averages don’t hold, then I would not be surprised if we revisit the early February market correction lows. Good luck to all and Paula and I wish everyone a safe and Happy St. Patricks Day πŸ™‚

~George

Dow Jones Industrial Average - Paula Mahfouz

1000 Points In 7 Trading Days?

I am not even sure what to say here, almost 1000 points in 7 trading days? After closing above the 25,000 mark for the first time ever on January 4th, the Dow Jones Industrial Average (see chart below) is now closing in on the 26,000 mark in a matter of days. I simply do not understand how this bellwether index can notch 1000 point gains in such a short period of time. In fact most of the major averages are continuing to set records almost daily. How long can this go on? Without question we are on the brink of the strongest bull market in recorded history. The Dow Jones Industrial Average (chart) closed the week at a record 25,803.19, the S&P 500 (chart) closed at a record 2,786.24, the Nasdaq Composite (chart) closed at a record high of 7,261 and the small-cap Russell 2000 (chart) closed the record setting week at 1,591.90. The market was boosted on Friday in part by the strong quarterly earnings results of JP Morgan Chase.

Speaking of earnings reporting season, this week truly is the start of earnings reporting season in which most analysts expect strong top and bottom line growth from corporate America. Over the past few years the markets did witness strong bottom line growth in which a lot of that growth was due to improved efficiencies and reductions of the workforce. Now the opposite is occurring. The economy is expanding as is the job market. This should bode well for not only company earnings but for the continuation of the bull market. That said, I would think that a pullback of any kind is in the cards and I would also expect that investors and traders would be there in support of a retracement.

From a technical point of view equites are clearly overbought according to the relative strength index also referred to as the RSI.Β However, this favorite technical indicator has not provided the guidance and reliability as it usually does simply because these markets have remained overbought for one of the longest stretches I can remember. There will be a time where the RSI will become more reliable as it once was, but in my humble opinion you will need a “normal” market environment for this to be the case. Good luck to all πŸ™‚

~George

dow jones - george mahfouz jr