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Market Direction Is Important –
Updated Chart of the S&P 500 and Secondary Signals
Of our Four secondary indicators under our MTI:
Relative Strength Index (RSI)-Negative
Chaikin Money Flow (CMF)-Negative
Money Flow Index-MFI-Negative
More on the Market and the Economy:
After entering correction territory on Thursday, the S&P 500 ended higher on Friday, still finishing the week down 5.2%, marking its worst week in about two years.
This week data will be released builder confidence, retail sales, housing starts and small business optimism.
Market Volatility and Corrections
Corrections scare investors, no one likes a pull back. For many, who thought markets only go up, they feel like the end of the world. Emotions run high on corrections, but rest assured this is normal – often several times a year.
Following nearly two years of virtually uninterrupted gains, yes, we have had almost 2 years of almost no market pull back of 8 to 10 percent (which is normal each and every year).
The market should not have caught any of our clients off guard as we talk about this kind of market volatility every week and as normal for long term gains.
We have written extensively about our view that it was only a matter of time before the ‘mean reverted’ to higher levels of volatility. We have regularly warned our clients and our TV and Radio show listeners of the possibility – even probability – of a full-on stock market correction. As of this week, the S&P 500 officially dipped into correction territory, having declined over 10% from the peak, and the dramatic and steep declines have alarmed many investors.
To date we have only received only “one” emotional phone call for all our hundreds and hundreds of clients, just one! I would say that is a testament to our communication and our education to our clients about volatility and the reality of short-term pull backs like the one we are currently witnessing.
Market volatility can be a normal, even healthy feature of equity investing, and in our view the economic fundamentals that formed our positive outlook for 2018 remain in place.
The reasons given for the volatility vary: inflation worries, global central bank tightening, wages rising too fast, computer-generated trading, etc. These concerns, to us, seem like the same old recycled fears we have been aware of for some time now. We do not think they have much fundamental impact. Quite the contrary in fact – when we see swings and sudden declines in the market accompanied by what seems to be a bit of media hysteria about widely-known economic fears, we tend to label those as classic signs of a market correction – not the start of a bear market. Even if the market declines should continue from here – which they could – we would encourage investors to stay the course.
In fact, because of better policy, economic growth this year looks set to accelerate to 3%+ (we are forecasting 4% real GDP growth in Q1). That is why interest rates are rising, because of better than expected economic growth. This is a good thing! Not a reason to sell stocks. In this case higher interest rates are a byproduct of a stronger economy, not the unwinding of QE or higher deficits.
Retail sales rose 0.4% in December, are up 9.0% annualized over the past six months and are up 5.5% year over year. January’s ISM Manufacturing and Non-Manufacturing indexes just hit the highest readings for a January in seven and 14 years respectively. In January, hourly earnings were up 2.9% from a year ago, the best reading since 2009. At the same time, initial claims have been below 300,000 for 153 consecutive weeks. Private payrolls were up 196,000 in January, and the unemployment rate is down to 4.1% and headed lower. And no, this is not a “part-time” recovery. In the past twelve months, full-time employment has grown by 2.39 million jobs while part-time employment is down 92,000! With 5.8 million unfilled jobs and quit rates at the highest levels of the recovery, there should be little question why the Fed continues to hike rates.
Job openings slipped 2.8% to a 7-month low of 5.81 million in December, marking the third decline in the past five months, while hires fell slightly to 5.48 million.
The trade deficit expanded 5.3% to $53.1 billion in December, as imports rose 2.5% to a record $256.5 billion while exports rose 1.8%. For the year, the trade gap jumped 12.1% to $566 billion, a 9-year high.
The Atlanta Fed’s GDPNow forecast for first quarter growth held steady at 4% following the release of wholesale trade data.