Global Markets Trends and Review Week Ending March 22, 2019
- Performance chart of world markets
- Chart of China Large-Cap (FXI)
- Performance chart of major US market sectors
- Chart of Technology Sector and Russell 2000 (bell weather sector and market index to watch)
- US Markets Industry Focus
Overview To Date: This has diffidently have been seeing a bifurcated market (divided into two parts). Technology and related sectors have made new recovery highs, while small and mid-cap US stocks have shown weakness. Friday’s selloff was an 80% down volume day and was attributed to US Federal Reserve lowering its economic forecasts for later in 2019. The financial markets took those forecasts and dropped the US and world bond yields which rippled through the markets on Friday. The yield curve is pretty much flat. The spread between the US Treasury 10-year and 3-month has gone negative for the first time since 2007. This is viewed by the experts as a weak forecast for the US economy later in 2019. Especially hard hit last week with the flattening yield curve was the financial and banking sectors.
Friday’s selloff was the first time since the December 2018 lows where the declining volume on the New York Stock Exchange was higher than 80%. Over the near term, this signals that the rolling correction could turn into a more substantive near-term correction. Be prepared for some rough sailing for the next few weeks. There is also the possibility of a retest of the October lows that the market averages sailed right past during the rally from the December lows.
The selloff last week was strong enough to pull two markets back into the downtrend. The short-trend for FEZ – Europe has remained positive. The primary and short trend has turned down for the US small-cap index Russell 2000 index. This highlights the weakness since late February in US small and mid-cap stocks.
Performance comparison of the major world markets to SP500: The primary trend for most world markets had continued up, though Friday’s US selloff took the world markets down with it. Some markets such as Emerging Markets (EEM) and Europe Stock Index (FEZ) have been in a sideways correction for a few weeks.
China market index (FXI) Bellwether Market: Continue to watch the China market as a bellwether indicator. With continued questions over the US/China trade deal and China’s economy, the China market has been trending sideways over the last few weeks. The 200-day moving average is still trending up. The sideways trend has a positive bias.
Relative Performance US market sectors: Most US market sectors were up until Friday’s down day. There was some movement back into defensive sectors. Hardest hit from Friday’s action were Financial (banks) down 4.84%, followed by Materials down 1.93%. The split market can be seen in the strongest sectors over the last month, Technology up 4.13%, Utilities up 3.28%, Real Estate up 2.64% and Communications up 2.13%.
Technology EFT – XLK Bellwether Sector and the Russell 2000: This is a good example of the market selectivity that started in late February. Sectors like Technology, Software, and Communications have continued to make new recovery highs. Small-Caps, as represented by the Russell 2000 and Mid-Caps, have been underperforming the market. The same happened in July 2018 well before the market highs in October. No big caution right now, but a warning sign to watch.
Summary: Since the December 24th low, the world markets have been in a strong rally. The market strength in US markets has been confirmed by strong market internals not seen since the low in 2016. The market internals still indicated a continuation of the secular bull market started in 2009 at least during the first part of this year (2019).
Since February the US and world markets have become bifurcated. Aggressive/growth sectors like technology and communications have made new recovery highs. At the same time US small and mid-cap stocks have been weak along with “riskier” world markets.
One of the potential big risks to the markets is the continued flattening of the yield curve. This was noted by many commentators as the source of Friday’s action. This makes for a riskier and more a selective market.
As mentioned at the top, Friday was an 80% down volume day, the first since the December 2018 lows. This is signaling that the rolling correction over the last weeks could turn into a near-term correction. A correction that could test the October lows that the markets sailed through during the rally up from the December low. Be prepared, the markets could get rough over the near term.
This is an aging bull market, and it will continue to be a difficult trading and investment environment. Recent market action has seen a focus on growth sectors like software and technology.
Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.