Not So Fast…

Posted on by George Mahfouz

Not so fast was the message that Jerome Powell signaled in last week’s Federal Reserve policy speech. Yes, the Federal Reserve cut the benchmark interest rate by 1/4 point to the 3.75-4.00 range which is what the market expected. However, after cutting the benchmark rate, Chairman Powell took to the podium (click here) and commented “there is no assurance that a December rate cut would occur” which immediately sent the stocks and the crypto market lower. Investors were caught off guard that the Chairman guided in this manner. In fairness to the Powell’s updated guidance, he also stated that because of the government shutdown there are no government economic data reports being released for the Fed to base any future decision on further interest rate cuts which makes sense.

What makes more sense is that Congress comes together now to reopen the government for all the reasons we know, including the restart of key economic reports that are issued by the government. How in the world can the Federal Reserve base policy decisions when they do not get the data they need from the government to assess the current state of the economy?  Investing and making investment decisions is already a complex process and the last thing we need is the leadership of this country to make it even more complex. Let’s hope Congress can come together sooner than later and reopen the government.

The good news is that the Fed did cut rates last week and this should bode well for the equity and crypto markets. Couple this with a better-than-expected Q3 earnings reporting season from corporate America and we should rally into year-end, especially if the government reopens. There are other factors at play such as coming to an agreement with China on trade and continuation of corporate earnings growth. Should all these factors align, then I would not be surprised to see a year-end rally.

Of course there is no guarantee that everything will align by year-end but despite the current uncertainties that we face what is impressive to me is that the Dow Jones Industrial Average (see chart here) the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are still trading near all-time highs.

Good luck to all 🙂

~George

Same Old, Same Old…

Posted on by George Mahfouz

It’s the same old, same old for the stock market. New record highs were set today on the S&P 500 (see chart here) and the Nasdaq Composite (see chart here)! Wait a minute, didn’t the government partially shutdown earlier this week? And yet the markets are still hitting all-time highs! Well hopefully the gov. figures this out as quickly as possible so that what is shut down can reopen. As the S&P 500 and the Nasdaq hit all-time highs today, both the Dow Jones Industrial Average (see chart here) and the small-cap Russell 2000 (see chart here) are within striking distance of their respective all-times highs as well.

So, what in the world is going on with our markets? For starters, corporate earnings for the most part have exceeded expectations up to this point despite the swath of tariffs that have been imposed this year. Secondly, the Federal Reserve cut interest rates last month and have signaled they are prepared to reduce rates further if needed. From the looks of things, lower rates are becoming more obvious as the job market continues to struggle. Normally, I would be concerned of how frothy the markets look and there are pockets of the market that are frothy. However, if corporate America continues to deliver better than expected earnings, coupled with a more accommodative Federal Reserve, the chances of stocks going higher into year-end is a strong possibility. I am not suggesting this will be the case, but I am beyond impressed with how resilient the stock market continues to be.

As I look at the technical shape of the key indexes the Dow Jones Industrial Average (see chart here) and the Russell 2000 (see chart here) are comfortably trading above their 20-day, 50-day and 200 day moving averages. Furthermore, both indexes are below the 70 value level of the Relative Strength Index aka the RSI. The 70-value level of the RSI is considered entering overbought territory. So, it appears that these two indices have room to run. A bit of a different story with the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) whereas today both have tapped the 70 value level of the RSI. Please note that with the RSI  it is not uncommon for stocks or indexes to go past the initial overbought level of 70 and proceed to as high as 80 and in some instances the 90 value level of the RSI. An 80 and especially a 90 value level is viewed as extremely overbought according the RSI principles. No matter what the case is, this bull market seemingly is not tired yet.

Good luck to all 🙂

~George

Broken Records, Literally…

Posted on by George Mahfouz

Records continue to be broken as both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) set records highs yet again last week. Yes, what typically is a softer month for stocks these major averages ignored history and recorded all-time highs. The Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) lagged a bit, but still is within striking distance of their all-time highs.

With all the uncertainty out of Washington, whether it’s the ongoing tariffs saga or the continuing demands directed at the Federal Reserve, how is it possible that index records are continuing to be set? One factor is the Federal Reserve is changing its tone on interest rates. The pressure has been on the Fed to start reducing rates since the beginning of the year. The Federal Reserve has a dual mandate pertaining to interest rate policies and that mandate is jobs and inflation. Unfortunately for the Fed, they are in a pickle. On one hand the job market has deteriorated over the past months, however, inflation continues to tick up. This is why the Fed has had their hands tied so far this year. But with the latest dismal job report that was issued in August, this has tilted the Fed to change their guidance to a more dovish tone. The markets have certainly has responded as evidenced by the new records that the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) have set.

Speaking of the jobs report, the August jobs report is schedule to be release on Friday September 5th. All eyes will be on this report which should cement rate cuts. If we see an even weaker than expected number, this could case the upcoming rate cut to be even more aggressive than the street is expecting. Whatever the case may be, I expect a volatile week ahead for the markets with plenty of opportunities.

Good luck to all 🙂

~George

 

Here We Go Again…

Posted on by George Mahfouz

Here we go again with more tariffs and on Friday, we also got a very weak jobs report. The markets reacted as they should have, especially after a rip-roaring record setting month of July that stocks enjoyed. On Friday the Dow Jones Industrial Average (see chart here) fell over 500 points, the S&P 500 (see chart here), the S&P 500 (see chart here) dropped over 100 points, the Nasdaq Composite (see chart here) fell over 400 points and the small-cap Russell 2000 (see chart here) closed the month of July down 45 points.

Now let’s add some perspective to this. The stock market has been on a tear since the bottom in April (see last month’s blog here). The markets not only recovered all its losses from the initial tariff fiasco earlier this year but went on to make all-time highs yet again in July. However, as the tariff deadline of August 1st loomed in the background, all heck broke loose with an expanded version of these tariffs in some instances along with a dismal jobs report that was also issued on Friday. Hence, a noticeable market sell-off ensued. To me all this heated market needed was a reason to sell-off and it got that on Friday.

Now looking ahead, where do we go from here? We needed a healthy market pullback for the uptrend to continue. Market participants have become so used to seeing markets going up and up with no end in sight. This is an unrealistic expectation and without healthy pullbacks, the market could set itself up for an outright crash which nobody wants to see. Now I don’t like what I saw in the jobs report, nor the increase in tariffs, so now I think the Federal Reserve may soon have enough data to start lowering rates. This is what the markets want to see and that might be the case sooner than later.

From a technical point of view, the aforementioned indexes finally came out of extreme overbought conditions according to the relative strength index aka the RSI to where now there could be some select opportunities to consider.

Good luck to all 🙂

~George

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

 

On And Off, And Then On Again…

Posted on by George Mahfouz

The tariffs are on then off, and then on again and the markets are swinging to every move that is being made. As mentioned in my last blog, for those traders who love volatility this is your market! For those who are long-term investors, yes, a little nerve wracking, but opportunities are also provided in the current backdrop we are in.

For all of the volatility we have witnessed over the past months, The Dow Jones Industrial Average (see chart here) managed to close the month of May up 1600 points, the S&P 500 (see chart here) closed out the month up 342 points, the Nasdaq Composite (see chart here) closed up 1667 points while the small-cap Russell 2000 (see chart here) finished on a positive note as well closing out the month of May up 102 points.

So how do we plan ahead and what’s in store for the summer months? I think we will see pretty much the same market activity. I expect market volatility to continue not only with the constant flow of tariff news, but also and even more so the future economic news. We have yet to see the effects of how these tariffs are playing a role in our economy. Lately there has been news out of the top companies in America that prices that consumers pay will be going up due to these tariffs. To me this is no surprise, who else would pay for them? I understand that Washington is coming out and saying that we are in negotiations with all countries that are getting hit with our tariffs, a strategy that can indeed work. Let’s hope so this way we all can start measuring the value of the markets in a traditional sense.

As I look at the technical shape of the indexes, we are currently not in an overbought or oversold condition. This according to the relative strength index aka the RSI. Let’s see how this week fares as the markets are trying to pick a direction. Good luck to all 🙂

~George

What Happens Next?

Posted on by George Mahfouz

What happens next is the question that just about everyone is asking now? After the onslaught of tariffs and executive orders, the markets have reacted accordingly. Heavy selling pressure has gone on since mid-February with a couple of strong bounces in between. Currently we find ourselves in yet another bounce back from the latest stock market selloff which occurred yesterday. For those who love volatility and trade around vol, you are having a field day, and this is your time. For those who have long term investments I think it is safe to say the last couple of months have been unnerving to say the least.

Over the past 25 plus years I have witnessed multiple markets and backdrops such as the one we have today however, those were for different reasons. The over exuberant dot-com bubble and the 2008 market crash when the banking system was on the brink of a total collapse. Today, we are not in this type of environment, but nonetheless, the tariff initiative needs to be monitored and managed properly so that we don’t fall into a scenario that would impact the markets long-term. I am hopeful that both sides in each tariff dynamic can come to a meeting of the minds.

As I look at the major averages I am seeing support in these selloffs, but I am also seeing resistance when stocks do bounce and try to restart an uptrend. I think we will be in this type of market for the foreseeable future whereas volatility will remain in play. For market vol to abate, the markets need to see how these tariffs will play out or if they will be adjusted so that agreements can be had. It appears adjustments will be happening.

The Dow Jones Industrial Average (see chart here) closed the month of April at 40,669, the S&P 500 (see chart here) closed at 5,569, the Nasdaq Composite (see chart here) 17,446 and the small-cap Russell 2000 (see chart here) finished the month of April at 1,964. Let’s not forget that the major averages have enjoyed record after record years before this disruption and quite honestly, weren’t we due for some kind of correction? Think about that and from my vantage point stocks and indexes are not acting too badly all things considered. Good luck to all 🙂

~George

 

 

All Key Support Levels Being Tested…

Posted on by George Mahfouz

As the first quarter of the year came to a close, all of the major averages key support levels are being tested. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here), and the small-cap Russell 2000 (see chart here and below) have all experienced selling pressure for the better part of the year. Ever since the new administration has taken office, the stock market has been selling off to the point of the 200-day moving averages of the aforementioned indexes have all been breached. It’s no secret that the constant flow of tariff news coming out of Washington is one of the main reasons why stocks are selling off. Markets do not like surprises and/or uncertainty and we have had more than enough lately.

As mentioned above, not only are the major averages support lines being tested, all of them have breached their 200-day moving averages which historically is a major support and/or resistance line. Please note, key support lines such as the 200-day M/A can indeed be breached and that doesn’t necessarily mean the end of the world. Major support lines can break temporarily before a reversal ensues. I am not suggesting this will occur, what I am saying is that just because a support line has been breached, it does not mean it’s a permanent situation.

What any market participant looks for and asks in market environments such as the one we are in now is; “when will the selling pressure stop?” Frankly what I am looking for is an end to the daily tape bombs on tariffs, the economy, consumer confidence etc. Things should begin to calm down once the markets understand how, why and when these dramatic policy changes will provide more benefits than drawbacks. We are going to need time to see how these tariffs will play out or just maybe our government will start changing its tune.  Good luck to all 🙂

~George

 

 

Stocks Are Jittery…

Posted on by George Mahfouz

I think it is apparent now that stocks are jittery! The constant barrage of chaos coming out of Washington is catching up to stocks and crypto alike. Over the past weeks volatility has reared its head whipping around the stock market and other asset classes.

The Dow Jones Industrial Average (see chart here) closed the month of February at 43840, the S&P 500 (see chart here) ended the month out at 5954, the Nasdaq Composite (see chart here) finished at 18847 while the small-cap Russell 2000 (see chart here) closed the month out at 2163.

Stocks never like uncertainty and unfortunately we have now entered a period of abundant uncertainty. The uncertainty of how the new tariffs our country is imposing on our trade partners and how that will impact our country, how the 10’s of thousands of jobs that are being eliminated will impact our economy and labor market, to the threats of invading and taking over other countries. It is no wonder why the volatility index: Symbol: $VIX (see chart here) has spiked recently. So what in the world is going on? Pundits are scratching there heads as to why our government is now pretty much bulldozing so many key areas of the economy and key relations that are crucial for sustainable economic growth. I don’t want to get too political here but what is for sure, markets do not like uncertainty and that is showing up now.

As I look at the technical shape of the stock market, the Dow Jones Industrial Average (see chart here) is smack in the middle of its 50-day moving average after a pullback of over 1000 points. The S&P 500 (see chart here) is now trading below its 50-day moving average with its 200-day M/A a little over 100 points away. The Nasdaq Composite (see chart here) on Friday actually touched its 200-day M/A and bounced, while the small-cap Russell 2000 (see chart here) has closed below its 200-day moving average.

Let’s see how the month of March responds to the recent market action and hopefully the volatility we saw in February will subside.

Good luck to all 🙂

~George

The Tariff Trade…

Posted on by George Mahfouz

The tariff trade is now in play. Stocks ended the month lower in response to the White House confirming that tariffs on Mexico, Canada and China begin today. This has been no secret that tariffs would be imposed on select countries, but I guess reality sunk in went in was confirmed yesterday.

The Dow Jones Industrial Average (see chart here) closed the month of January down 337 points, the S&P 500 (see chart here) closed lower by 30 points, the Nasdaq Composite (see chart here) gave up 54 points and the small-cap Russell 2000 (see chart here) closed the month of January down around 20 points. Despite yesterday’s pullback, the month of January overall was a strong month for the markets.

When countries impose tariffs on each other consumers lose. The costs of tariffs typically is handed down to the consumer which will impact consumer spending and the economy. From fruits and vegetables, to lumber, to oil to cement, etc. the list goes on. Seemingly everything is about to get more expensive which of course will lift inflation. What a minute, aren’t things supposed to get cheaper and isn’t inflation supposed to be coming down? Clearly that isn’t happening now. Let’s hope that the political chess game does not go on for an extended period.

The sectors and stocks that will be most impacted by these newly issued tariffs are consumer discretionary stocks, materials stocks, the industrials, healthcare stocks and technology stocks. Yea, that’s pretty much our whole economy. So, time will tell how the markets will continue to react but it is pretty clear what will be happening here in the short term.

As I look at the technical shape of the major averages, they all remain solidly above their 200 and 100-day moving averages, but with yesterday’s selloff the key indices fell to their 20-day M/A and found support there before the market closed. Next week we will see if the support level can hold.

Good luck to all 🙂

~George