Global Markets Trends and Review Week Ending August 2, 2019
- Review of global markets starting with the US
- Performance chart of world markets
- Chart of China Large-Cap (FXI)
- Performance chart of major US market sectors
- Large-Cap (SP500) vs. Small-Cap (SP600)
- Sector Highlight; Technology, Restaurants & Bars and Consumer Specialized Services
Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 30%. The S&P 500 made another new all-time high the previous week while waiting on the US Federal Reserve meeting and progress on the Chine/US trade negotiations.
The US Federal Reserve did reduce the US short-term rate by 25 basis points as expected. But the markets did not like Reserve Chairman Powell’s comments after the meeting and the markets sold off sharply. The next day (Thursday) the markets rallied, recovering most of the previous day’s loss, and then Trump tweeted about more tariffs on Chinese goods. The market resumed its selloff which continued into Friday. The US and world markets across the board ended down for the week. Foreign markets and higher-risk equities were especially hard down. See the summary table below.
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 has also turned down. Where as last week the Primary Trend for all markets was up, the depth of the selloff pulled six market trends down. The previous week summary table is included for comparison.
Performance comparison of the major world markets to SP500: All of the world markets closed down for the week. The four down the most were China down 5.61%, Emerging Markets down 5.04%, Nasdaq 100 (QQQ) down 4.07%, and Euro Stock 50 down 4.04%.
China market index (FXI) Bellwether Market. Continue to watch the China market as a bellwether indicator. Of all of the world markets in the table above, China was down the most at 5.61%. The China index took a big fall after Trump’s tweets about more tariffs. Weakness in China spills over into other world markets. In the chart below, looking at near term support at 39. If 39 breaks, next support is at 37. Should 37 break, that would signal the potential of major market and economic downturn.
Relative Performance in the US market sectors: All but two US sectors were down last week. Defensive sector Real Estate was up 2.00%, and Utilities up fractionally 0.28%. The weeks sell-off was broad-based across all the remaining sectors. Even the defensive sector Staples was down 1.89%. Such broad-based sell-off indicates institutional selling, moving money from stock and equities into non-equities such as bonds. The US 20+ Year Treasury Bond ETF (TLT) was up 4.04%!
Large-Cap (SP500) vs. Small-Cap (SP600): The S&P 500 made another new high the previous week. The S&P 600 small-cap has lagged the S&P 500. But this week with the selloff, the small-cap showed stronger relative strength versus the S&P 500. For the week the S&P 500 small-cap index (IJR) was down 2.59% versus the SP500 down 3.11%. Institutional money did not flow out of higher-risk equities as much as would be expected.
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 4.29%. But remains the best performing sector since the December 2018 lows.
Dow Jones US Software Index, US Restaurants & Bars Index, and US Specialized Consumer Services Index; With last week’s selloff all three industry sectors closed lower. It will be a good gauge of market health to see how these industry sectors respond. A good rebound after any near term sell-off would be a positive for a continued rally into late 2019. Of the three, Restaurants & Bars sector was down the least at 1.93%.
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. Last weeks selloff has pulled the short-term risk signal to neutral. Any further selloff in the markets would pull the short-term risk signal to OFF at least temporarily and classify the markets back into correction mode.
Trading volume is seasonally low during the summer months. Markets can be moved on modest volume. This is a news-driven market with nervous investors, so expect price volatility. Last weeks market selloff was a good example of how easily this market can turn down with negative news. All it takes is a tweet or two, waffling comments by the Federal Reserve Chairman and the markets sell-off.
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.
John R. Deck
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