A lot has happened in the past week. The S&P 500 fell 4.1% on Monday and dropped 7.8% from Jan 26 through yesterday, erasing all the gains for the calendar year. Yesterday’s panic selling was severe, and volatility has emerged with a divergence after taking last year off. It is easy to get caught up in the fear of the moment when markets fall hard. So, let’s step back and look at where we are.
We are still in a bull market. The 50-day moving average for the S&P 500 remains above the 200-day moving average and the index hit a new all-time high less than two weeks ago.
Here is a look at the S&P 500 going back to the lows of early 2016. While the recent sell-off was severe, it did not break the uptrend line that has been in play since the bull market began.
Even with the recent drop in the stock market, the weight of the evidence continues to be bullish for stocks.
I will be monitoring market technicals closely in the coming weeks and if things change, I will have no problem flipping to a more bearish bias and reallocating client accounts.
The Bottom Line
Bias:
Positive for Stocks
Negative for Interest Rate Sensitive Bonds
• Stocks both domestically and internationally are in an uptrend and we are in a bull market.
• When the S&P 500 is hitting all-time highs, international markets are advancing strongly, and market breadth is positive – there is no other way to view the market other than positive!
• I am seeing more evidence of long-term reversals in trend that suggests:
1. Rising stock prices
2. Rising bond yields and thus lower prices for Interest rate sensitive bonds.
3. A falling dollar
4. Rising commodity prices
• The thing to keep in mind is these are long-term trends. Treasury yields have fallen for over 35 years and commodity prices have fallen for about 10 years. If these trends are reversing to the upside, they could have long-term implications.
• October Newsletters addressing the early moves in yields, bonds, and commodities:
Bonds a Ticking Time Bomb I – October 4, 2017
Bonds a Ticking Time Bomb II – October 25, 2017
• Long-term, the weight of the evidence continues to be bullish for stocks. At some point, this will change and when it does, I will have no problem flipping to a bearish bias and reallocating client accounts to a more defensive posture. However, market technicals continue to signal that we are in a bull market and thus we should be invested in stocks aggressively.
Client Update
I continue to view stock market risk as low, thus our accounts have high stock market exposure.
I have continued to add to our equity holdings by buying stock funds that have pulled back and are in long-term up-trends.
We do not hold any interest rate sensitive bond funds.
Email me to schedule your free, no obligation retirement account allocation review.
Craig Thompson, ChFC
Email: [email protected]
Phone: 619-709-0066
Asset Solutions Advisory Services, Inc. is a Fee-Only Registered Investment Advisor specializing in helping the needs of retirees, those nearing retirement, and other investors with similar investment goals.
We are an “active” money manager that looks to generate steady long-term returns, while protecting clients from large losses during major market corrections.
Asset Solutions is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.