Markets Are Now On The Edge
Are we having fun yet?
For those with strong stomachs, things seem dicey if nothing else. There’s no question investors are seeking answers to what’s happening, and why. To that end here’s a monthly chart of the S&P 500 which remains the top index to measure markets in my opinion.
Then, of course are the fundamental views.
There is the coming of weak earnings for the coming quarter. Of course experiences from these events are bolstered by, you guessed it, earnings beating analyst’s expectations. Recently the has led to rallies since that’s been the market’s mojo Companies have also used ultra-low interest rates to borrow money at cheap interest rates to incur massive debt, and with it purchase shares in the open market. These buybacks have the benefit of reducing shares making even lower earnings better over fewer shares. This activity has bolstered stock prices benefit all holders and especially to insiders with lucrative stock options. This action has a short-term benefit to companies but robs future growth since it doesn’t fund capital investing in research and the like.
Thursday markets are now concerned about weakening Global Growth. That borders on amusing since who didn’t know this concern didn’t exist? Employment on the surface has been good but inside the numbers only the lowest paying jobs have been present including part-time jobs and hamburger flippers. Not to denigrate those on government entitlements, it’s been more beneficial to receive these benefits than work. Inflation? There hasn’t been any, and any vies of energy prices confirms this.
And, so it goes.
Just as investors were feeling good about the rebound Wednesday in stocks, their good feeling were dashed Thursday. As it’s been common over much of 2016, bulls have been seeing opening market declines being quickly bought by dip-buyers. I believe these buyers are defending their misbegotten positions. They could include overseas sovereign wealth funds (some backscratching among central banks), hedge funds, large portfolio managers and so forth.
The Fed with interest rates at near zero, along with of central banks, have run out of ammunition if should economies shrink to unacceptable or recessionary levels. They really can’t lower interest rates any further. Negative interest rates anyone?
Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red). Dependent on the day (green) may mean leveraged inverse or leveraged short (red).
Volume picked up on selling which is par for the course and breadth per the WSJ was the reverse of Wednesday.
My last remarks focus on the early comments especially regarding the monthly S&P 500.
Not only does it appear to make conditions shaky, the fantasy that’s been supporting higher equity prices seems to be over.
Further consistently deteriorating economic conditions and earnings reports lend nothing to bullish sentiment.
I may not post Friday. If not, enjoy your weekend.
Let’s see what happens.