It is my belief that we are in a short-term correction within a longer-term uptrend. These type of corrections are healthy and normal for bull markets.
The S&P 500 fell 10% in early February and has since recouped about half that. Market volatility has increased significantly after being subdued all last year.
On a long-term basis, the S&P 500 is trending up, its 50-day moving average is above its 200-day moving average, and both those averages are trending higher. The weight of the evidence continues to be bullish for the stock market. That being said, we could see some short-term weakness as this correction could take a little more time to work itself out.
Risk-on assets continue to outperform defensive assets, and that is bullish for the broader stock market. Below is a relative strength chart of a Consumer Discretionary ETF versus a Consumer Staples ETF. When the line is rising it indicates that Consumer Discretionary stocks (which are a risk-on asset) are outperforming Consumer Staples (which are defensive). The propensity for money to continue to move into risky assets is further evidence that this market is heading higher over the long-term.
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The Bottom Line
Positive for Stocks and Commodity Prices
Negative for Interest Rate Sensitive Bonds
• Even though the stock market fell 10% earlier this month, we are still 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!
• Interest rate sensitive bonds are falling and could be transitioning into a long-term bear market.
• 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.
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 stocks and stock funds that have pulled back and are in long-term up-trends.
We do not hold any interest rate sensitive bond funds.
Craig Thompson, ChFC
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.