Global Markets Trends and Review Week Ending July 26, 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. Since the June 3rd low, the markets have rallied back making new highs.
Again this week, many US market indexes and sectors made new highs. Some of the US sectors making new highs were Technology, Materials, Financials, Consumer Staples, and Communications. The US Utilities Sector was off over concerns of interest rates.
Continued to see some weakness in non-US foreign markets. Notable, was strength in US small-caps equities showing an interest by investors in higher-risk investments.
Most world indexes finished the week up. Investment uptrend signal (green) across all of the markets. China (FXI) should be considered neutral with a Primary Trend Value less than one.
Performance comparison of the major world markets to SP500: Seven of the world markets closed up for the week. China Index (FXI), Emerging Markets (EEM), World Index (VEU) and Euro Index (EFA) all closed fractionally down. After previous week’s selloff, rally in US indexes. Nasdaq (QQQ) was up the most at 2.24%. The Russell 2000 small-cap was up 2.20% showing investor interest in small-cap, higher-risk investments.
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. The index has found 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 up. Only Energy and Utilities were down and only less than 1%. Top sectors were all non-defensive; Communications up 4.30%, Financials up 2.68%, Technology up 2.35% and Industrials up 1.36%. Many of the sectors continued to make new recovery highs over the last few weeks driven by earnings reports beating expectations. Over the last month, the top three sectors have been Communications up 6.84%, Financials up 6.38%, and Technology up 6.09%. Utilities have been up 1.11%. Institutional money has been flowing back into non-defensive sectors.
Large-Cap (SP500) vs. Small-Cap (SP600): The S&P 500 made another new high this week. The S&P600 small-cap has lagged the S&P500. This week S&P 500 small-cap index (IJR) was up 2.41% versus the SP500 up 1.63%. Indicates money moving into higher-risk equities.
Sector highlight, Technology, Dow Jones Software Index, US Restaurants & Bars Index, and Specialized Consumer Services Index: Technology stocks and funds have led 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 about 45% 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. Restaurants & Bars Index gapped up after Starbucks reported earnings well above expectations.
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. Q3 earnings announcements are driving much of the market action. For example, as noted above, Starbucks was up sharply after beating earning expectations. The action in Starbucks pulled the US Consumer Discretionary index up. As earnings reports beat analyst’s expectations, the market will continue to have an upside bias.
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.
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.