parabolic

All-Time Highs Once Again!

Posted on by George Mahfouz

Stocks and key indexes hit all-time highs once again! The S&P 500 (see chart here) and the Nasdaq Composite (see chart here) hit record highs yesterday. It’s astonishing to me that despite the current geo-political backdrop, the continuing uncertainty from the tariff’s initiative and the political jockeying that is a constant, two of the key indexes hit all-time highs yesterday. However, the Dow Jones Industrial Average (see chart here) and the small-cap Russell 2000 (see chart here) still have work to do before they see their new all-time highs. That’s if they see their all-time highs.

In the past I have seen parabolic moves when major averages or individual stocks go up day in and day out. There are a lot of factors as to why prices go to extremes and here are a couple of examples; there is what is called “the fear of missing out” from retail investors where retail investors try to ride the trend and, in some cases, blindly. Another example is from an institutional standpoint and that is a term that is called “painting the tape”. Painting the tape refers to institutional money managers bidding up stocks into the end of a quarter, so their books reflect an even higher positive return and the end of a given quarter. Whatever the case may be, this is yet another impressive rally that we have witnessed despite all the market headwinds I spoke to above.

As I look ahead here in July there is so many different dynamics that will unfold that will certainly impact the markets. Let’s start with the Q2 earnings reporting season. Now that the 2nd quarter of the year has concluded, companies will start reporting their Q2 earnings results here in July. No question once earnings reporting season begins investors will be watching and listening closely as to how corporate America’s earnings are being impacted by the newly issued tariffs. I am expecting a cautionary tone from these companies as their CFO’s begin to model in how the tariffs will adjust their future forecasts. Then we have the geo-political backdrop and the uncertainty there, especially now with the new Iran – Israel conflict. Finally, there is a bill in Washington that is being debated as I type, who knows how that will end up?

I think it is safe to say that we are going to be in for a wild ride in the coming weeks and months. Good luck to all 🙂

~George

 

Russell 2000 – All Time High!

Posted on by George Mahfouz

So now the small-caps join in! The Russell 2000 (chart) closed the week at an all time record high of 1490. For most of the year the widely followed small-cap Russell 2000 has lagged the other major averages. Now it has broken out, see (chart). In fact, when you look at the chart of the Russell, one can say this index has gone parabolic. The Nasdaq (chart) and the S&P 500 (chart) also closed at their all time highs on Friday, while the Dow Jones Industrial Average (chart) posted yet another positive week. What’s more is the month of September is typically one of the weakest months of the year for equities losing on average of 1.5% happening 70% of the time since the 1970’s. Not this year, in fact there have been so many record-breaking closes on all of the aforementioned indices it’s hard to keep track.

Question is, now what? With the third quarter of the year now in the books, Q3 earnings reporting season is right around the corner. I have got to believe with the Federal Reserve closing the chapter on their quantitative easing policy and now taking those assets off of their books, plus interest rates scheduled to rise, investors should pay closer attention to the health and growth of corporate earnings. Do you remember the days when earnings and earnings growth actually mattered? Well those days may be back upon us. Hence, the report cards that come in from corporate America may actually move the markets in a fundamental way. This we have not seen in almost a decade. However, if the market momentum that we have experienced since the election continues, and investors ignore the fundamentals, then why couldn’t we end the year at even higher highs?

One thing for sure is October will be filled with many catalysts that should bring in some volatility and a lot of opportunity.  Between now and year end may be the time to implement a hedged strategy where one can potentially profit regardless of how the indexes or individual stocks react to what’s ahead. I’ll cover this in my next blog. Good luck to all. 🙂

~George

It’s parabolic!

Posted on by George Mahfouz

Stocks remain on fire in January as most of the major averages are hitting multi-year highs, and in some instances all time highs! For the week, the Dow Jones Industrial Average (chart) closed up 1.8%, the Nasdaq (chart) +0.48%, the S&P 500 (chart) +1.14% and the small-cap Russell 2000 (chart) finished the week higher by 1.39% and closing at an all time high. Once the S&P 500 was able to breakout and remain above the 1475 level, which had been a major resistance level, the money that had been sitting on the sidelines seemingly went to work. Also there has been a slow rotation out of bond funds and into stocks.

One would thing that a pullback of some sort is in the cards for equities. However, with earnings reporting season coming in better than expected so far, and the debt ceiling issue being pushed out, we may very well continue to see this upward trajectory for stocks at least in the short term. There could be one catalyst that may give the market a pause and that is next weeks jobs report. If the employment picture continues to remain weak, I would think that this could be a reason for stocks to take a breather.

In addition to the January jobs report released next week, we will also get earnings reports out of Caterpillar (NYSE: CAT), Yahoo (NasdaqGS: YHOO), Ford (NYSE: F), Amazon (Nasdaq: AMZN), Facebook (NasdaqGS: FB), Mastercard (NYSE: MA) and ExxonMobil (NYSE: XOM) just to name a few. Good luck to all.

Have a great weekend 🙂

~George