ETF/Mutual Fund Data updated through Thursday, July 14, 2016
If you are not familiar with some of the terminology used, please see the Glossary of Terms.
1. DOMESTIC EQUITY MUTUAL FUNDS/ETFs: BUY — since 4/4/2016
Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in above chart) remains above its long term trend line (red) by +2.78% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.
1. Moving the Markets
The Dow and S&P 500 indexes moved higher Thursday, pushing further into record territory as investors (domestic and abroad) reacted to a positive earnings report from JPMorgan (JPM) and continued to price in/hope for further stimulus from global central bankers despite interest rates remaining at depression levels.
Investors got a boost from a strong earnings report from JPMorgan (JPM), the nation’s second largest bank by assets. The closely watched bank reported Q2 earnings per share of $1.55, which surpassed the $1.43 analysts had expected. Revenue also topped expectations and shares jumped more than 1.5% on the day.
Wall Street was also reacting to a decision by the Bank of England to keep its benchmark interest rate unchanged at 0.5%. It was the first meeting of the BOE following the June 23 vote by Britain to exit the European Union, and investors were expecting a quarter-point rate cut. Still, the BOE said it expects “monetary policy to be loosened in August,” when it meets again.
Stocks around the globe have rallied sharply in the aftermath of the so-called Brexit vote. Again, the rebound rally has been driven in large part by a realization that global central bankers will further stimulate economies to offset the fallout and uncertainty caused by Britain’s surprise vote to leave the single-market European Union. At least that is the convenient excuse that will be used many times over, especially if a severe market pullback materializes.
1. Moving the Markets
The U.S. stock market, which is now enjoying its second-longest bull run ever, closed lower today despite decent reports on the U.S. economy. While some Wall Street pros say the recent surge has put stocks temporarily in an overbought state, the general consensus is that the bull is alive and well and will post further gains as the breakout continues unless reality with underlying fundamentals sets in.
The Fed stated today that the U.S. economy picked up modestly in late May and June as the recovering housing market underpinned growth while the beleaguered manufacturing sector improved somewhat. Surprisingly, the summary said that employment continued to grow modestly despite the 287,000 June job gains reported by the Labor Department last week.
Manufacturing has been the biggest blemish on the economy for well over a year as weakness overseas and a strong dollar curtailed exports, and low oil prices have dampened investment in the energy sector. Commercial real estate sales and leasing also was stable or improved the Fed said.
1. Moving the Markets
One record setting day this week wasn’t enough for Wall Street it seems. Yesterday, the S&P 500 passed its high water mark and obviously impressed investors, but the Dow got jealous and joined the S&P 500 in taking out its 2015 all-time high and moving into previously untouched territory.
Some are asking themselves, how is this bull market different from the 2015 bull market? Well, the market might look like a bull party, but beneath the surface, investors are playing it much safer than they did in 2015. Stable and high-yielding stocks like utilities, real-estate investment trusts and energy are the best performing asset classes this year. That’s completely different from May 2015, when the leading stocks were risky investments like biotech, consumer discretionary and technology stocks. Still, keep in mind this does not change the fact that this rally is built on nothing but hope for more stimulus by the central banks and is not based on improving fundamentals.
As I mentioned last week, Alcoa (AA) was set to kick of Q2 earnings season this week. They reported after the bell Monday and shares gained more than 5% today after the aluminum giant reported better-than-expected results. Overall, the news from corporates here in the U.S. is not expected to be good, with analysts estimating S&P 500 company profits will be down 5.2% overall from a year earlier. Again, none of this matters as long as the Fed is your friend and remains accommodative. Until—one day—the bottom drops out.
1. Moving the Markets
Friday’s rally following the 287k jobs number, which was only impressive on the surface, continued into Monday as traders considered the current situation a Goldilocks scenario. Because there is continued uncertainty about the fallout from the Brexit vote, the higher than expected jobs number is not seen as a signal that the Fed might be raising rates in the near future, hence we have unbridled optimism.
Helping equities was the fact that Japan’s PM Abe won his election with his ruling coalition over the weekend and his now having two-thirds majority in their upper house giving him the power to push through possibly the mother of all stimulus programs. Not by coincidence, I am sure, former Fed chair Bernanke has been meeting with Abe and rumor has it that even the theme of “Helicopter money” will be discussed.
That’s all it took, and the the Nikkei shifted into overdrive by gaining almost 4% on the day with momentum flowing into the U.S. markets at the opening. European equities gained as as well despite the fact that their banking system is in danger of collapsing with Italian banks being the center of attention followed by Deutsche Bank.
But then again, who cares about these little inconveniences when major stimulus programs can drive equity markets higher no matter what. Case in point today was the Nasdaq, which pierced through its 5,000 level but failed to hold it. If you look at the chart below, it simply does not make sense:
I keep hearing that the “Chicken Little’s” are once again being proved wrong. We keep being shown chart, after chart, after chart, after chart how the market recovers from perilous sell-offs. This is expressed as “proof” the “market” doesn’t want to go down, and has legs to vault ever higher.
Cause for concern is being dismissed by the hordes of next in rotation fund managers, economists, Ivory Tower academics, or Nobel Laureates as they themselves stampede to any available cameras, microphones, or keyboards that will quote them as saying “See…all that worrying is for naught. And expressing anything other is strictly for the gloom and doom crowd.” Which they then will triumphantly state: “Which has been wrong over, and over, and over again.”
My response is this: Then why is nobody buying it? (e.g., the market) Figuratively, as well as literally.
