Founder & Chairman
Contradiction. That’s the word that we believe best describes the market right now. The S&P 500 has recently ascended to all-time highs, which of course has gathered the attention of the news media and other financial pundits. Yet, as of the Friday before Memorial Day, the S&P 500 was up a whopping 2.8% for the year. The Dow and the Nasdaq just hit positive territory and are up less than 1% for the year. Not very inspiring considering the “all-time highs” we’ve seen this year. Contradiction.
Naturally, as of May 1, we entered into the seasonally challenging period for the stock market, which has been a longer-term trend that lasts until November. More recently, however, that trend has been less reliable, as external influences have been a significant factor in determining market direction. Global central bank intervention has really weighed heavily on the markets, essentially pushing prices up and nearly eliminating corrections of greater than 10%. We’re not sure if there is an end in sight to central bank intervention, for whatever that is worth.
A closer look at the markets and the economy suggests another contradiction. There are signs of slowing and or a weaker economy, which normally might produce lower returns. The contradiction, of course, is that opens the door for the Federal Reserve to continue in some way it’s indirect support of the markets. Anyone who says they know what’s coming is either lying, or foolish enough to believe they actually do know. What we do know, the Fed is hanging all over the domestic markets. Abroad, investors are anticipating the European Central Bank, who is clearly late to the party, to start some kind of easing/stimulus package as early as next week. There are also expectations that China will continue to support its markets through central bank maneuvers to help boost Asian markets and potentially commodities as well.
What’s interesting is that long-term bonds have made a nice little run this year which is usually not a good sign for stocks. Contradiction. As the Fed continues to be involved investors will continue to bet on stocks. Until they don’t. The algorithm is our version of an early warning system. It has done a good job in the past of indicating that investors are moving out of equities in the early stages, but nothing is fool -proof. We have multiple systems in place to try to be on the front-end of changing trends. We think a likely rotation towards European equities, Asian equities and commodities will transpire at some point. Another area that we think investors might find attractive is large company stocks that pay a healthy dividend. If the price doesn’t move too much, you still have a decent yield that pays more than a treasury bond.
We have made some modest adjustments to the models, to reflect our thinking. As always, if you have authorized us to make automatic changes, those changes have already taken place. If not, you need to email us or call the office to give us permission to update your portfolios.
Visit www.sawchukwealth.com to review past issues of The Marketview.
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