hedge fund

Dow 24,000 – Bitcoin $10,000 – Why Not?

Posted on by George Mahfouz

Is this really happening? Stocks exploded to the upside on the last trading day of November. For the first time in its history, the Dow Jones Industrial Average (see chart below) traded, blew through and closed above the 24,000 mark. The Dow started the year just under 20,000 and no one and I mean no one in the who’s who of finance, analysis, technical analysis, hedge funds, institutional investors and the like, ever predicted this type of performance for stocks and the key indices on the year. I cannot even count the number of record highs that have occurred this year not only in the Dow Jones Industrials, but also the S&P 500 (chart), the Nasdaq composite (chart), and the small-cap Russell 2000 (chart). Let’s throw in Bitcoin and its year to date 10X performance and we are truly in party mode.

I am not even sure what to think? This eerily feels like the irrational exuberance environment that occurred in the mid to late 90’s and before the internet bubble imploded. However the bullish pundits are quick to point out that this time is different. Back then, whoever came out with an announcement that they just launched a website saw their stock go up. Now the pundits are pointing out that it is earnings and growth that are responsible for this torrid record setting pace we have been on all year long. This is true to some degree. But what about the euphoria in Bitcoin? What is the catalyst that has propelled this so call asset to fly up over 10 times this year? This is why the other side of the camp thinks we are approaching a bubble or at the very least nose bleed territory. Without question I feel that something is going on that makes one have to pause and take a breather here. But as we have seen all year long, don’t underestimate the power of momentum, a low interest rate environment and the Trump trade. Is it possible that the Dow Jones Industrials actually could close above 25,000 by year end? As much as I want to say and think “no way”, way! Not saying the Dow will go up another 800 points by year end, but if we do, I would not be at the very least surprised.

Good luck to all 🙂

~George

Dow Jones Industrial Average - George Mahfouz Jr

As Expected, The Fed Raises Rates…

Posted on by George Mahfouz

To no surprise, the Federal Reserve raised interest rates 1/4 point today citing stronger economic growth and a pick-up in inflation. A stronger job market also played a role in the decision of the Fed. What wasn’t quite expected was the language of an additional anticipated rate hike from the projected two hikes in 2017 to now three. This might of caused the slight sell-off yesterday in the markets with the Dow Jones Industrial Average (chart) falling 118.68 points, the S&P 500 (chart) was lower 18.44 points, the Nasdaq (chart) fell 27.15 points and the small-cap Russell 2000 (chart) retraced by 17.51 points.

With all things considered, this pullback was long overdue. In fact, I am surprised that the markets held up like they did yesterday. Especially considering the rip roaring rally most equities have enjoyed since the presidential election. Markets have been on fire with the Dow Jones Industrials (chart) gaining almost 1,600 points, the S&P 500 (chart) ripping 125 points, the Nasdaq (chart) catapulting about 300 points and the small-cap Russell 2000 (chart) up a staggering 170 points. What a breathtaking rally in such a short period of time.

So what can we expect between now and year end? Let’s think about this for a minute. If you are an institutional investor, fund manager, hedge fund or the like would you be taking profits into year end? Or would you wait until we get into the new year knowing that capital gains taxes and corporate taxes are coming down? I think it is fair to say the latter would make the most sense. Add into the mix the rotation that continues out of the bond market and into equities in which certain pundits believe we are in the fourth or fifth inning of that rotation, one has to ascertain that this bull market has more room to run.

Whatever the case I think pullbacks will be bought as momentum continues into year-end. Paula and I wish everyone the happiest and healthiest holiday season 🙂

~George

Record breaking July!

Posted on by George Mahfouz

The month of July served up all time highs as Q2 earnings reporting season begins to wind down. For the month, the Dow Jones Industrial Average (chart) closed up 3.50%, the tech-heavy Nasdaq (chart) gained a whopping 6.8%, the S&P 500 (chart) +4.38% and the small-cap Russell 2000 (chart) closed the month up 5.6%. The rally in stocks continue thanks to favorable corporate earnings for the most part, and the Federal Reserve keeping its commitment to do whatever it takes until the economy can stand on its own two feet. Yesterday, after the Federal Reserve’s 2-day policy meeting ended, the central bank reiterated that it would continue its $85 billion per month bond buying program and keep interest rates near zero to help support and strengthen the economy.

That said, August begins with quite the test as all eyes will be on tomorrow’s  jobs report. The July unemployment report should be the most scrutinized report of the year as the Federal Reserve has been on the record recently signaling as to when they may start pulling back on its monthly bond purchases. A stronger than expected report may compel the Fed to begin tapering as early as September. However, if job growth continues to be modest, then I think its safe to say the accommodative policies of the Fed will continue into the foreseeable future. So you may ask what does this all mean to the market? This may become the case where good news in the labor market may be bad news for stocks. I know it seems counterintuitive, however, just the notion in late May that the Fed was considering tapering sooner than later sent the markets down five percent in a matter of a couple of weeks. I think everyone from the hedge fund community to mutual funds to institutional investors and even the individual retail investor have been so reliant on this accommodative Fed, that once the tapering actually begins, we may just see the stock market correction the bears have been anticipating all year long.

Technically speaking, although the markets are seemingly overbought, the key indices are not at extreme overbought conditions, just yet. Let’s take a look at the relative strength index (RSI) on the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the Russell 2000 (chart). As you can see, these indexes are trading below the 70 value level which is the level most market technicians consider an extreme level. I personally consider the 75-80 value level as extreme, especially in today’s market environment. That said, it appears there has been some consolidation going on over the past couple of weeks with the aforementioned indexes which have been trading in a pretty tight range.  Just maybe tomorrow’s unemployment report will be the catalyst for stocks to breakout of its recent trading range and begin a new trend. I view a breakdown of the 1650 zone in the S&P 500 (chart) as bearish. However, should the S&P 500 (chart) break and close above 1700 in a meaningful way, we may just see the extreme overbought conditions come into the marketplace as mentioned above. Good luck to all and I wish you all a very profitable month.

All the best 🙂

~George