Global Markets Trends & Review Week Ending June 28, 2019

Review of global markets starting with the US
Performance chart of world markets including a chart of Euro STOXX 50 ETF
Chart of China Large-Cap (FXI)
Performance chart of major US market sectors
Large Cap (SP500) vs. Small-Cap (SP600)
Sector highlight, US Rails Index, Software Index, and Consumer Specialized Services
Summary

Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 26% making a new all-time high on May 1. 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 strongly making a marginal new high. Two weeks ago the markets were waiting on the US Federal Reserve. With dovish comments from the Fed about interest rates the markets rallied. This week it has been waiting on news about the US/China trade negotiations and the upcoming meeting between XI and Trump.

Worth noting, with all of the investor concerns over the upcoming XI and Trump meeting, the markets closed the week up. Many of the world market indexes like the Emerging Markets EFT (EEM), and Euro STOXX 50 ETF (FEZ) did well. See the chart for the FEZ – Europe below.

All of the world markets have their primary and short-term trends up. Investment uptrend signal (green) across all of the markets.

Performance comparison of the major world markets to SP500: Seven of the world markets in the above table were up last week. Many of the world markets like the Euro STOXX 50 ETF (50 largest eurozone companies) were stronger than US markets. (See the chart below) This shows investors willing to move into more risk-on investments. Continue to see good plurality as the markets move up together, which indicates continued strength in the market’s uptrend.

Euro STOXX 50 ETF (FEZ) closed up the week on above-average volume. Indicates investor willingness to move into more risk-on investments.

China market index (FXI) Bellwether Market. Continue to watch the China market as a bellwether indicator. After closing below its 200-day moving average, the China index rallied and closed back above the 200-day moving average, a positive sign. The China market results impact world markets and expectations about world economies and trade.

Relative Performance in the US market sectors: Four of the eleven of the US market sectors were up. The top three were non-defensive sectors, Materials up 1.44%, Financial up 1.40%, and Industrial up 0.44%. The bottom three were defensive, Real Estate down 2.65%, Utilities down 2.23%, and Health Care down 1.16%. While investors have been defensive since the December lows, money has started flowing back into non-defensive/growth equities. In the chart below, I have highlighted the decline in the relative strength of the top three defensive sectors Real Estate, Utilities, and Staples as money has moved (slowly) into non-defensive sectors. Over the last month, top non-defensive sectors were Materials up 10.52%, Technology up 7.15% and Industrial up 6.37%.

Large-Cap (SP500) vs. Small-Cap (SP600): While the S&P 500 made marginal new high, the S&P600 small-cap index has lagged. The S&P600 small-cap index was up for the week indicating movement into more risk-on investments.

Sector highlight, US Rails Index, Software Index, and Specialized Consumer Services Index: When the markets have corrected, it is valuable to see how different sectors respond. The review can indicate what investors think about the health of the economy and where the next investments opportunities are. Three sector indexes are highlighted below.

Products are shipped on railroads and railroads do well in a strong economy. Investors have shown concerns about a possible economic slowdown. The rails did rally after accommodative comments by the Federal Reserve for a rate cut in July. The concern is the rail index is still below its all-time high made May 1. It would be supportive of the broad market rally to see the rail index rally to a new high.

The Dow Jones US Software Index has been one of the stronger sectors but sold off with the Technology sector during May. The index has been up 4.97% over the last month.

US Specialized Consumer Services Index has continued steady, close to making another new high. Specialized Consumer Services Index is 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. 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 markets went quiet waiting on word from the US Federal Reserve and then rallied. Now the markets on waiting on the upcoming meeting between XI and Trump and positive word on the US & China trade talks. After initial weakness early in the week, most markets rallied finishing the week up. Investors continued to move money into more risk-on investments. This was seen in strength in European and small-cap indices and markets. Depending news from the XI and Trump meeting, the markets on Monday (July 1) and the rest of the week could move up or down sharply. Expect some possible surprises.

July 4on Thursday is a US national holiday. July 4 weeks are generally slow with low volume as many traders, and institutional investors take some of all of the week off. If there will any strong market action, expect it early in the week.

This continues to be a news driven market with nervous investors. Defensive sectors and stocks had lead growth sectors. Since the June 3 low, money has started flowing back into non-defensive (growth) sectors.

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) where 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.