I’ve seen plenty of manic-depressive stock market action over my nearly 30 years in finance, but this market takes the cake for epic twists and turns.
Market Roundup
In fact, for the past 16 months, investors have experienced one head-fake after another from markets. Meanwhile, the S&P 500 closed today at 2,051.60 … up 13% from the February low and right where it was way back in November 2014!
But the lack of overall market gains masks the epic volatility beneath the surface.
The New Year began with stocks in the midst of a selling squall. Reminiscent of the frequent downpours we experience during the south Florida summers, stocks experienced torrential selling, with the market falling five out of seven weeks to start this year.
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| Markets hit by super-manic action – what’s ahead? |
A few weeks of sideways movement followed as the skies cleared and stocks found their footing in mid-February. And since then, investors have been on a buying binge that’s been just as forceful on the upside as January’s selling squall was on the downside.
The S&P 500 has rallied five straight weeks now, putting the Dow and S&P back into the plus column year-to-date and within striking distance of new highs.
Several tricky crosscurrents have been driving this crazy volatility. In a recent article (Green Shoots and Dark Clouds), I pointed out that one of the biggest reasons has been sharp turns in the economic data.
Investors were encouraged to buy stocks recently thanks to better-than-expected economic data. The rally in oil prices and the weakening U.S. dollar also get some of the credit. Plus, the Fed dialing down its plan to hike interest rates helps.
| “Don’t get too complacent … the market is back near the high end of the recent bungee-jump range.” |
But don’t get too complacent, because the market is right back near the high end of the recent bungee-jump range, and the next big move could easily be to the downside again. Just look at how far and fast stocks have advanced.
After its recent rebound, the S&P 500 Index is now two standard deviations above its 50-day moving average, which is a fancy statistical way of saying: Extremely overbought.
And buckle your seatbelts because this week is chock-full of potentially market-moving economic reports including the PMI Manufacturing Index tomorrow, new home sales Wednesday, durable goods orders Thursday and the final numbers on fourth-quarter GDP and corporate profits, due Friday.
The question is: Will bullish economic data and positive surprises keep supporting stocks, or are we in for yet another negative downside reversal?
Already this week the economic data has taken a turn for the worse with this morning’s report on existing home sales, which plunged 7.1 % last month, much lower than expected and the second-lowest reading in over a year. (More details below.)
Tighten your protective stops and stay tuned!
Good investing,
Mike Burnick
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Sales of existing homes in the U.S. declined sharply last month — a disappointing result amid other signs that the American economy is holding up well in the face of a global slowdown. The National Association of Realtors said home re-sales fell 7.1% to an annual rate of 5.08 million units, the lowest level since November. Sales have been volatile in recent months after the introduction in October of new mortgage regulations that are intended to help homebuyers understand their loan options and shop around for loans best suited to their circumstances. The median price for a previously owned home rose 4.4% from a year ago to $210,800.
A report commissioned by the Confederation of British Industry said that Britain’s exit from the European Union could cause a “serious shock” to the country’s economy, possibly costing it 100 billion pounds ($144 billion) and up to a million jobs. Household incomes could be between 2,100 pounds and 3,700 pounds lower if Britain votes to leave the EU in a June 23 referendum, the study said. The UK’s unemployment rate, currently at 5.1%, would be 2 to 3 percentage points higher, with 950,000 jobs potentially lost, said the report, which was conducted by accountancy firm PricewaterhouseCoopers (PwC).
The world’s largest Internet poker company has set up shop in New Jersey. The New Jersey Division of Gaming Enforcement approved PokerStars for full operations in the state, and the company’s software became available for download. The launch marked the return of the Internet poker giant, which stopped doing business in the U.S. in 2011, ABC News reported. For now, only PokerStars customers physically located in New Jersey will be able to use the platform to gamble online in the U.S. New Jersey has the largest market of the three U.S. states that currently offer Internet gambling (along with Nevada and Delaware).
President Obama was greeted by Cuban President Raul Castro with a military honor guard and the playing of the U.S. and Cuban national anthems at the Revolutionary Palace in Havana as his historic visit to the island nation continued. Obama stopped earlier at the nearby Plaza of the Revolution, where he laid a wreath at the statue of 19th century independence hero Jose Marti. The presidents made public comments later in the day. On Tuesday, the Tampa Bay Rays will play an exhibition baseball game against the Cuban national team.
The Money and Markets team
Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.
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Nature knows that there are to many bulls. The market is overbought. The bears will bring it back to balance.
Earnings and previously owned home sales (down 7%) and other negative data have not been able to bring this bull down. This looks like a manipulated market or 2008 all over again.
Hi Mike,
I think it is going to be incredibly hard for this market fully break down. the fed can’t let this market tank because if they do loose control they don’t have any other tools to stimulate the market (given zirp etc…). Previous bear market cycles (2002/3 & 2008/9) have had interest rates much higher…
What tools does the Fed have to keep the markets from the tank when they decide to go there? There is no visible support for where it is now. Hopes and dreams? They are only good until they are dashed, and they will be, of course – sooner or later.
Hey Chuck hot air and fairy dust.
We are back in that “bad news is good news” mood of the market. A fed gov even came out today to say interest rate hike coming in apr/may. The market only flinched for a minute. Every bad economic data point will push market higher…
Has our president killed coal? Does the East coast still ship to EU?
YES HE HAS ……… AND HE IS TRYING TO KILL OIL JOBS TOO
US markets may witness an influx of investments from Asia and Europe since only the blue chip, well capitalized, with excellent balance sheet companies in both regions are stable enough to hold up against the financial debt situation and lack of global economic progress. The US markets provide a better safe haven although trillions of dollars in debt will raise it’s head sooner or later. A roller coaster ride is in the cards.
Al,
You may be right on this, and a few months back, that is exactly the way I was playing the market, But, let me add this to the equation …. the US dollar is dropping in value, which means that something bought by a Japanese investor today in the American market could be worth less money when he/she goes to sell it due to the dropping dollar. It’s an interesting problem.
Look, PE ratios are to high …corporate profits shrinking… This market is over priced for reality .
Look in the mirror and ask yourself about the market.. It is supported by the Federal Reserve . They are not man/woman enough to admit this. They support the market with manulipated interest rates.
If we manulipated our business like the federal reserve we would be in jail..
it is evident, that no one financial GURU person knows anything!
I’m with you. Subscribing to investment newsletters has confused me a lot more than enlightening me. Jim
Like I said before 2050 S&P is the line in the sand. If we can hold support and close above this on a Friday I will sell my shorts.
But this would be for a very modest lost, But if we get a good down turn we will make a lot more then a Modest Lost.
We are no longer in a buy and hold Market, We must sell when it looks toppy and reverse w/ shorts. And when the markets goes down buy on sale and sell our shorts.
You are right Mike, this market is like a bungee-jump, and you know how a bungee-jump ends; you get left hanging, hopefully not for too long.
As Al said above, U.S. markets could be benefitting from E.U. and Asian money looking for a safe haven. China, in particular, could be a prime source of money. Dr. Weiss pointed out this morning, that Chinese are sharply limited in funds they can take to other countries, but are actually encouraged to buy foreign companies. The Anbang thing is a good example. I know that several local companies have been “invested” in by Chinese companies – small companies with good prospects that still hadn’t IPO’d. I’m sure this is happening all over the country. Chinese are usually patient, future focused, and not after the quick buck. America is a ‘melting pot’ economically, not just in its population.
The government would be smart to encourage American investors to follow a similar path, maybe with tax breaks. Get rid of taxing earnings already taxed in other countries, for example, when they are brought home.
Do not every sell when your shorts when your down if your buying guiltily stocks wait add to your position if. Unless you are retiring soon real soon it will recover. Every time I have sold when I am down I al ways regret it. Food for thought.
I agree with that advice 100%.
Jim Rickards, by the way, believes that Japanese investors are about to “detonate” the $1.4 QUADrillion derivatives market. If so, that could wreck markets worldwide. Keep your eyes open and be ready to bale.
Very low volume today. Still feel market has topped and this week should confirm that opinion.
OMG! Back in November everyone was freaking out because the Markets had not experienced a correction in several years. And then when they did???? Give me a break, people!!! The Markets are the Markets. Get used to it.
Concerned over existing home sales for last month? I believe that last month was February. When I lived up in the Midwest, February was in the dead of Winter. Not many people were outside looking at homes to by!
Too much “hot money” looking for a home. What can I say?
Ahhh, a stable system once again with steady gains, paid for (in part) by the squeezed shorts to boot! Since electronic money is essentially free to some, new highs are probable at this point. It does seem they can keep the markets afloat w/o alarming the participants who come to buy.
That said, the probability of achieving this, each day going forward is about 50-50 IMHO. Too many other other dots are connected that point to epic changes ahead.
S&P earnings is a fallen canary. 3 quarters in a row is alarming to say the least.
Apart from seasonality in which people rather stay indoors than go out on a home shopping spree, the raise of interest rates in December will make home purchases a bit more expensive. Couple this with an outlook that interest rates may be going higher in the not so far future, I would bet that people are second guessing taking on new loans at this stage. With this said, it can only be expected that home sales figures will drop.
Smart people who are in the market for a new home are out shopping madly. They know if rates keep creeping up, it is going to cost them more in interest in future years.
i can remember when you were worried higher rates might make payments too expensive and hurt home sales.
It really does not matter what the interest rate is. We are currently in a real estate bubble, prices are where they were in 2007/8. If you hurry and go out to buy a house for $200,000 and get a low interest rate, what do you have when the bubble pops and that same house is now worth $120,000. Answer, you are under water and either continue paying for this house or walk away.
there’s no one speculating in real estate right now, a hallmark of a any bubble. when these bubble pop, they’re done.
FOR ALL US INVESTORS. A NOTE FROM CHARLIE MUNGER. FROM THE 2013- BERKSHIRE HATHAWAY MTG. IF YOUR NOT CONFUSED YOU DON’T UNDERSTAND THING’S VERY WELL.