Global Markets Trends & Review Week Ending July 19, 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
Summary

Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 30% and made another new all-time high this week. The S&P 500 sold off during May, about 8% as investors were rattled by negative news. Since the June 3rd low, the market has rallied back making new highs.

Many US market indexes and sectors made new highs early in the week. Some of the major US indexes making new highs again were S&P500, the Dow Jones Industrials, Nasdaq Composite, and the NYSE (New York Stock Exchange) Composite. US sectors making new highs were Technology, Consumer Discretionary, Consumer Staples, and Communications. As the week went on, prices pulled back. The price action looked more like profit-taking as investors waited on earnings reports.

Continued to see weakness in non-US foreign markets and small-cap US equities.

Most world indexes finished the week down. However, the primary and short-term trends for all of the world markets remains up. Investment uptrend signal (green) across all of the markets.

Performance comparison of the major world markets to SP500: All of the world markets closed down for the week except China Index (FXI and Emerging Markets (EEM) which were up fractionally. Bottom four were Russell 2000 down 1.47%, Nasdaq 100 (QQQ) down 1.30, Russell 3000 down 1.21%, and Russell 1000 down 1.17%. The selloff looked more like short-term profit-taking, after the Nasdaq 100, Russell 1000, and Russell 1000, and other US indexes made new highs over the last two weeks.

China market index (FXI) Bellwether Market. Continue to watch the China market as a bellwether indicator. China index had been in a rally since its June low. Over the last few weeks, the index has sold off and traded sideways, but the index did find support at its 200-day moving average. The concern has been about an economic slowdown in China. Continued weakness in Chinese index (FXI) could drag non-US world indices down.

Relative Performance in the US market sectors: Nine of the US market sectors ended the week down. This included both non-defensive and defensive sectors. Consumer Staples and Materials were up fractionally. The bottom four sectors for the week were Communications was down 2.14%, Energy down 2.61%, Real Estate down 2.18% and Consumer Discretionary down 1.55%. Many of the sectors made new recovery highs over the last few weeks. The late-week selloff looked more like short term profit-taking.

Large-Cap (SP500) vs. Small-Cap (SP600): While the S&P 500 did make another new high, the S&P600 small-cap index continued to lag the S&P500. During major corrections, small-caps are one of the last sectors to recover. If the weakness persists, it can be an early warning of the top in the secular bull market.

Sector highlight, Technology, Dow Jones Software Index, US Restaurants & Bars Index, and Specialized Consumer Services Index: Technology stocks and funds have lead the markets both up and down. The Technology ETS index (XLK) made another new high last week along with a new high in the SP500. This is a good indication of continued strength in the markets and a continuation of the bull market. The Technology Index is now up over 42% since its December 2018 lows.

Dow Jones US Software Index, US Restaurants & Bars Index, and US Specialized Consumer Services Index; all three made new highs last week. The US Software Index is part of non-defensive/growth Technology Sector. Restaurants & Bars Index and Specialized Consumer Services Index are part of the non-defensive Consumer Discretionary sector.

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 has turned the intermediate to short-term risk signal back to ON.

The S&P500 and other major US indexes made new highs early in the week as did some of the US market sectors. The week ended with the markets down on what looked like short-term profit-taking. We are now in the beginnings for Q3 earnings announcements, and many investors are waiting or even taking profits in anticipation of earnings reports. As in March, there could be some consolidation or short-term correction until Q3 earnings reports are completed.

Trading volume is seasonally low during the summer months. Markets can be easily moved on modest volume. This continues to be a news-driven market with nervous investors, so expect price volatility.

While defensive sectors and stocks had been leading non-defensive/growth sectors, money is now flowing back into non-defensive (growth) sectors as seen in the strong rally in technology and other non-defensive sectors. The Technology Index EFT (XLK) is up about 42% since its December 2018 lows. Consumer Discretionary is up about 37% since December, while Consumer Staples (non-defensive )has been up 26% over the same period.

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.