pundits

Is A Soft Landing Ahead?

Posted on by George Mahfouz

For months now stock market pundits have been calling for a recession. Now it appears that a soft landing is ahead. You name it from Wall Street analysts to the media, not a day goes by without hearing the word recession. Well folks the economic data that has been coming out lately is showing just how strong our  economy remains. The latest gross domestic product (GDP) report  that was issued last week showed that in the second quarter of this year our economy grew by 2.4% which surprised the street. What’s more is that this the fourth straight quarter of economic expansion. This sure doesn’t sound like a recession to me. Our economy is growing despite the Federal Reserve continuing to raise interest rates. As of now it sure does look like the Federal Reserve is managing these rate hikes to perfection.

The stock market sure likes what it is seeing from the economy. The Dow Jones Industrial Average (see chart here) continues to remain above its recent breakout. The same can be said for the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here). As I alluded to in my July blog, it appeared that stocks were on the verge of breaking out. Sure enough, the month of July was a very bullish month not only on the economic front but also for the stock market. One thing I now want to look for now is if stocks are becoming overbought?

As I look at some of the key technical indicators such as the RSI and the Moving Averages technical indicators nothing too alarming there from a technical standpoint. The exception here is both the Dow Jones Industrials (see chart here) and the S&P 500 (see chart here) are flirting with becoming overbought based on the relative strength index aka the RSI. That said, this is no surprise due to how strong the markets performed in month of July. Let’s see if there is a pullback of some sorts here in August or the continuation of this bullish action.

Wishing everyone the best of luck 🙂

~George

Correction Chatter Abound…

Posted on by George Mahfouz

Here come the pundits! Over the past couple of weeks the conversations of a significant market correction have spiked along with market volatility.  From billionaire investor David Tepper’s comment that “the markets appear to be dangerous” at last week’s annual SALT conference to Dennis Gartman of the renowned “Gartman Letter” stating we are in a correction as we speak. There is certainly no shortage of opinions flooding the airwaves. Now granted, recently stocks have been in somewhat of a downward trajectory especially the so called “momo” (which stands for momentum) stocks and the more riskier small-cap asset class. In fact, the small-cap Russell 2000 (chart) has been sold off more so than any other index losing around 10% from its high in early March. This while the Dow Jones Industrial Average (chart)  recently made an all time high at 16,735.51. I think it’s safe to say there has been a rotation going on, a rotation out of riskier assets into the bellwether blue chip stocks.

So what about this apparent correction that is about to happen? Some pundits are calling for as much as a 20% correction at any time. I am not so sure about that. Seemingly, when the markets do become vulnerable and volatile regardless of why, the bears begin to come out of hibernation. Yes, this bull market does appear to be a bit long in the tooth, but in my opinion one factor that still stands in the way of a severe market correction, you guessed it, the Federal Reserve. Even though the Fed has begun to taper its bond and asset purchases, they have also indicated that should the “facts on the ground shift” hence, our economy heads into a recession or should the markets experience a severe sell-off, that it would be prepared to make adjustments to its policies, in other words, another form(s) or an extended version of stimulus would most likely occur. So how can anyone bet against these markets when you continue to have the Federal Reserve as the floor to any potential significant selloff? This does not mean that volatility will not increase or that we couldn’t see pullbacks or even quasi-corrections and should this be the case, I have got to believe the bulls would step right in and deploy their capital right along with the Fed.

So if you are currently bearish on equities or you are buying into the chatter of an imminent market correction and have gone short, you may want to consider covering your positions in the event of a 5 or 10% retracement or for that matter, a breakout from the current levels. Personally, I will look to add to certain positions should we see the correction many are talking about. Of course, it is always best practice to consult a professional financial advisor(s) before developing a market strategy or making changes to your portfolio. Good luck to all.

Memorial Day weekend is coming up and the markets will be closed on Monday May 26th. Both Paula and I wish everyone a safe and healthy Memorial Day and we want to thank and are grateful to all of the veterans and their families who gave the ultimate sacrifice serving our beloved country. We also want to thank the brave men and women who are currently serving our country and protecting our freedoms.

Sincerely,

~George & Paula