Global Markets Trends August 16, 2019

Global Markets Trends & Review Week Ending August 16, 2019

Global Markets Trends and Review Week Ending August 16, 2019

  1. Review of global markets starting with the US
  2. Performance chart of world markets
  3. Chart of China Large-Cap (FXI)
  4. Performance chart of major US market sectors
  5. Large-Cap (S&P 500) vs. Small-Cap (S&P 600)
  6. Sector Highlight; Technology, Restaurants & Bars and Consumer Specialized Services
  7. Sector Review; Dow Jones US Railroad Index
  8. Summary

Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 30%. The S&P 500 made a new all-time high on July 26. With talk about trade wars and concerns over interest rates, the market moved into a period of correction.  August 5 and 14 were major high-volume down days. Each was followed by high-volume up day. Friday’s action was a high-volume up day and came close to correction over signal. One or two more high-volume up days, with at least one day of 90% of advancing stocks over declining stocks to confirm correction over. This is a news-driven market and the correction may extend on before getting clear correction over signals.

The news has been a drag on the markets. It has been the drop in interest rates worldwide that has had the most negative impact and has had institutional investors scrambling. The 20-year US Treasury has gained 12.13% over the last month, dropping to a yield of 1.82% on Friday. As recently as March 1 the yield was 2.97%. That is a 100 basis point drop in yield. Another safe haven has been Gold which has gained 7.84% over the last month.

One bright spot in Friday’s market action isthe S&P small-cap index (IJR) was up 2.23% while the S&P 500 (SPY) was up 1.48. More strength in the small-call index would help confirm correction over signals.

All of the world markets were down last week. The Primary Trend signal remains up (green) for only four markets, all US. The remaining world markets and the US Russell 2000 have all turned down. The Short-Term Trend Values for all markets are also down.  Non-US markets remain the weakest. As mentioned in this newsletter during October of 2018 before the November-December selloff, weakness in the non-US world markets is a concern to monitor.

Performance comparison of the major world markets to SP500:  All of the world markets closed down for the week.  The three indexes down the most were SPDR Euro (FEZ) down 1.48%, Russell 2000 (IWM) down 1.32%, and Vanguard World Fund (ex-US stock) down 1.17%.  Continued weakness across all the world markets keeps the short-term risk signal to OFF.

China market index (FXI) Bellwether Market.  Continue to watch the China market as a bellwether indicator. China index continued to fall but did recover some of its losses late in the week, finding support above 37. The index was down 0.36% for the week. Weakness in China spills over into other world markets. In the chart below, the China index broke through support at 39.5 and then 38. Next support level is the November 2018 intra-day low of 37. Should that support level break, it would signal the potential of a significant Chinese market and economic downturn.

Relative Performance in the US market sectors: All but two of the US sectors were down last week. Defensive sector Utilities was up 0.84% and Real Estate up 0.49%, The sectors down the most were Energy down 3.52%, Financial (impacted by falling interest rates) down 2.21% and Consumer Discretionary (concern about the economy) down 2.03%. The week saw more institutional selling, moving money from stocks and equities into non-equities such as bonds. The US 20+ Year Treasury Bond ETF (TLT) was up another 4.34%, 12.13% over the last month. 

Large-Cap (SP500) vs. Small-Cap (SP600):   The S&P600 small-cap is still lagging the S&P 500. Both ended down fractionally for the week. Over the last month, S&P600 small-cap is down 2.91%, and the S&P 500 down 3.62%. There was surprising strength in the small-caps on Friday, up 2.23% for the day, while the S&P 500 was up 1.48%. This indicates that some long-term value/investors are doing some investing in small-caps.

Sector highlight, Technology, Dow Jones Software Index, US Restaurants & Bars Index, and Specialized Consumer Services Index:  Technology stocks and funds lead the markets both up and down. Technology Index was down for the week 0.21%, but up on Friday 1.90%. Much like small-caps, some institutional buying coming in.  Technology remains the best performing sector since the December 2018 lows, up 27% year-to-date.

Dow Jones US Software Index, US Restaurants & Bars Index, and US Specialized Consumer Services Index; With last week’s early selloff, all three industry sectors closed up. Software index touched it’s support from the December 2018 low and rallied up. Specialized Consumer Services index rallied, closing the week near its previous high. All indicative of underlying market strength.

Dow Jones US Railroad Index: The US Railroad index reflects investors’ concerns about the economy. Products are shipped on railroads. If the economy softens, railroad shipments and revenue slow and then drop. The index has broken through its March low. Weakness in transports, especially the railroad index, is a warning of a possible economic slowdown and a subsequent top in the major US markets. Generally this “divergence”, where the railroad index starts making lower-lows, while the markets continue to make higher-highs can be months in the making. More about this next week on how this played out in 2015 to 2016.

Summary: From the December 24th low, the world markets started a strong rally. The market strength in US markets was confirmed by positive market internals not seen since the low in 2016.  These positive market internals remain in effect. Long to intermediate-term risk signal is ON projecting a continuation of the long-term bull market started in 2009. The June rally with strong market internals turned the intermediate to short-term risk signal back to ON. The sharp sell-off sparked by interest rate concerns starting July 31 pulled the short-term risk signal to OFF. The markets were back into correction mode.  At this stage waiting on clear correction over signals before the short-term risk sign is ON. As pointed out last week, August is a weak month and market action may remain mixed over the next few weeks.

Summary of Risk Signals: Long to intermediate-term risk signal is ON. Intermediate-term risk signal is ON but with caution. Short-term risk signal is OFF subject to confirmation of correction over signals and a resumption of the 2019 rally.

The purpose of this newsletter is to identify the primary trend of the major global markets. Good market investment returns are made by investing and trading with the primary market trend. US market internals and worldwide markets trends point to a continued positive investment environment in 2019. Conditions for support for continued uptrend: 1) Federal Reserve continues to be accommodative; 2) improvement in the Chinese economy and continued stimulus; 3) positive resolution of the US/China trade deal; 4) broader participation and strength in the small-caps. 5) No hard BREXIT (British exit from EU) though a hard exit is becoming more likely.

Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.

Posted in Global Markets Trends.