The stock market took the positive seasonality surrounding the 4th of July very seriously, and in the half day of trading on the 3rd, stocks rallied sharply - more than the typical pre-4th of July rally. The Dow gained 179-points, and we saw gains of close to 3/4 of a percent in most of the major indices.
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The seasonality surrounding the 4th of July is bullish, with the days leading up to it a little stronger than the days following, but they're still positive (at least from 1950 - 2011.) So the pre/post holiday reversal may not be as prevalent as it could be, but it's still out there as a possibility. Whether Friday's action, which would be quiet if not for the jobs report, is part of the pre or post holiday action is debatable. It still feels like pre-holiday with the weekend coming up.
Chart provided courtesy of www.sentimentrader.com
With the trade war still going on but a positive spin put on it after last weekend's meetings, and the Fed primed to cut rates at the end of the month so there's some bullishness in the air, but now investors will turn to earnings which are still a couple of weeks out. It might be that calm before the "storm" that keeps stocks buoyant during the first half of July as the seasonality chart suggests, and then perhaps some profit taking when earnings start to roll in. I say "storm" but it's just some averages red in the latter half of the seasonal chart.
Chart provided courtesy of www.sentimentrader.com
The June Jobs Report will come out early this morning (Friday) and estimates are looking for a gain of 160,000 jobs, an unemployment rate of 3.6%, and wage growth of 0.3%.
It's the Friday after the 4th of July and I was going to make this quick since I figured most folks are busy, but I thought it would be a good time to talk about this with market closed yesterday and tomorrow.
When I was younger, my philosophy was, if stocks are going to be up 20%, I want in. The late 90's / early 2000's dot com frenzy was exhilarating. But things have changed, and the dot com bubble bursting and then the financial crisis made me look at things a little differently, especially since I was getting older.
My philosophy over the last couple of years has been that the market has gotten extremely overvalued in relation to other historic market peak valuations, so I have been playing more of a hit and run strategy in the hope that if this market does eventually go the way of 2008, or 2001, or 1987, etc., that we'll be sitting with a lot of cash ready to buy real value. Not just "dips."
It has so far been back-firing on me. I had a gain in my TSP account last year (+4.4%), a down year for stocks, and this year I'm up about 8% doing a lot of quick, hit and run, in and out buys, but in comparison to what the indices have done so far in 2019, that's not good enough. The strategy just decreases the possibility in being caught in what I feel is an inevitable downdraft. When? That is the question.
Historically the market cycle gives us a slowdown in the economy every 7 years or so. If you do the math going back to the 1987 crash, there was a recession in 1994, another in 2001, another in 2008, and here we are 11 years later, but what I am learning now, something we'd hadn't seen before in my lifetime, is that when interest rates are dropped to 0% like they were in 2008, the economic cycle may not run its normal course.
Does that mean we'll never get another recession again? The problem is, if there is a serious downturn in the economy and interest rates are already near 0%, the Fed doesn't have a whole lot of ammunition left to fix it. Raising the rates last year may have slowed things down, but at least they have the ability to cut rates again to try to thwart it. But why now with the unemployment rate at 3.6% and GDP doing fine and, as President Trump calls it, the best economy in our history? It doesn't make a whole lot of sense. And what options will they have if they go back to 0%?
In the interim, weak economic data may still be celebrated assuming that it keeps the Fed in dovish mode. But if the economy can't pick up after the rate cuts, what then? Back to 1% GDP?
The market did well during the nearly 10 years that interest rates were at 0%, basically regaining all of the losses from the financial crisis, but if interest rates stay historically low, that means retirees have to keep their accounts exposed to the stock market in order to hope for a decent return that keeps up with inflation. In the 80's and into the 90's the G-fund was paying close to 9% a year. Now it's closer to 2% and that's why the market keeps moving higher. There aren't many other choices. But if / when it comes tumbling down again, the amount of wealth that will be evaporated because we just don't put money into safe savings anymore, could be devastating, especially to retirees or those close to retiring. That is unless you stay nimble, which is why I have the hot and run philosophy that I have now.
I'll get back to analysis next week but for today I'll just post the chart of the S&P 500 (C-fund), which is again in new high territory and now trending higher after the recent breakout. It is at the top of a new trading channel so there is room to fall, but the channel is rising and the trend traders will stick with it until that breaks.
Will it last until earnings season, as we talked about above? Maybe. But with those historically high valuations (as far as price to earnings ratios go) and the market already pricing in 4 rate cuts from the Fed in the next year, stocks may be priced for perfection right now, and that puts them on the vulnerable side.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TR]
[/TABLE]
The seasonality surrounding the 4th of July is bullish, with the days leading up to it a little stronger than the days following, but they're still positive (at least from 1950 - 2011.) So the pre/post holiday reversal may not be as prevalent as it could be, but it's still out there as a possibility. Whether Friday's action, which would be quiet if not for the jobs report, is part of the pre or post holiday action is debatable. It still feels like pre-holiday with the weekend coming up.
Chart provided courtesy of www.sentimentrader.com
With the trade war still going on but a positive spin put on it after last weekend's meetings, and the Fed primed to cut rates at the end of the month so there's some bullishness in the air, but now investors will turn to earnings which are still a couple of weeks out. It might be that calm before the "storm" that keeps stocks buoyant during the first half of July as the seasonality chart suggests, and then perhaps some profit taking when earnings start to roll in. I say "storm" but it's just some averages red in the latter half of the seasonal chart.
Chart provided courtesy of www.sentimentrader.com
The June Jobs Report will come out early this morning (Friday) and estimates are looking for a gain of 160,000 jobs, an unemployment rate of 3.6%, and wage growth of 0.3%.
It's the Friday after the 4th of July and I was going to make this quick since I figured most folks are busy, but I thought it would be a good time to talk about this with market closed yesterday and tomorrow.
When I was younger, my philosophy was, if stocks are going to be up 20%, I want in. The late 90's / early 2000's dot com frenzy was exhilarating. But things have changed, and the dot com bubble bursting and then the financial crisis made me look at things a little differently, especially since I was getting older.
My philosophy over the last couple of years has been that the market has gotten extremely overvalued in relation to other historic market peak valuations, so I have been playing more of a hit and run strategy in the hope that if this market does eventually go the way of 2008, or 2001, or 1987, etc., that we'll be sitting with a lot of cash ready to buy real value. Not just "dips."
It has so far been back-firing on me. I had a gain in my TSP account last year (+4.4%), a down year for stocks, and this year I'm up about 8% doing a lot of quick, hit and run, in and out buys, but in comparison to what the indices have done so far in 2019, that's not good enough. The strategy just decreases the possibility in being caught in what I feel is an inevitable downdraft. When? That is the question.
Historically the market cycle gives us a slowdown in the economy every 7 years or so. If you do the math going back to the 1987 crash, there was a recession in 1994, another in 2001, another in 2008, and here we are 11 years later, but what I am learning now, something we'd hadn't seen before in my lifetime, is that when interest rates are dropped to 0% like they were in 2008, the economic cycle may not run its normal course.
Does that mean we'll never get another recession again? The problem is, if there is a serious downturn in the economy and interest rates are already near 0%, the Fed doesn't have a whole lot of ammunition left to fix it. Raising the rates last year may have slowed things down, but at least they have the ability to cut rates again to try to thwart it. But why now with the unemployment rate at 3.6% and GDP doing fine and, as President Trump calls it, the best economy in our history? It doesn't make a whole lot of sense. And what options will they have if they go back to 0%?
In the interim, weak economic data may still be celebrated assuming that it keeps the Fed in dovish mode. But if the economy can't pick up after the rate cuts, what then? Back to 1% GDP?
The market did well during the nearly 10 years that interest rates were at 0%, basically regaining all of the losses from the financial crisis, but if interest rates stay historically low, that means retirees have to keep their accounts exposed to the stock market in order to hope for a decent return that keeps up with inflation. In the 80's and into the 90's the G-fund was paying close to 9% a year. Now it's closer to 2% and that's why the market keeps moving higher. There aren't many other choices. But if / when it comes tumbling down again, the amount of wealth that will be evaporated because we just don't put money into safe savings anymore, could be devastating, especially to retirees or those close to retiring. That is unless you stay nimble, which is why I have the hot and run philosophy that I have now.
I'll get back to analysis next week but for today I'll just post the chart of the S&P 500 (C-fund), which is again in new high territory and now trending higher after the recent breakout. It is at the top of a new trading channel so there is room to fall, but the channel is rising and the trend traders will stick with it until that breaks.
Will it last until earnings season, as we talked about above? Maybe. But with those historically high valuations (as far as price to earnings ratios go) and the market already pricing in 4 rate cuts from the Fed in the next year, stocks may be priced for perfection right now, and that puts them on the vulnerable side.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
