Global Markets Trends and Review Week Ending May 3, 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
- Charts of the S&P 500 vs. S&P 600 small-cap index
- Chart of US Dollar
Overview To Date: The US and most World markets continue to make steady advances. S&P 500 made another new all-time high. Major world markets made new recovery highs but are still below their respective all-time highs.
Earnings reports continue to impact US markets and sectors, although most reports have been positive. Midweek the markets did not like the notes from the US Federal Reserve. Especially the comment that the low inflation might be transitory. This raised concerns about a future possible rate hike, not a rate cut the markets had factored in. The markets sold off some and then reversed the next day. The boost for the markets late in the week came from the better than expected US jobs creation numbers, along with a drop in unemployment. With that news, the markets ended the week higher. Even the small-cap indexes like the Rusell 2000 and the S&P 600 finished the week up.
The US Dollar continued strong and had a negative impact on commodities and materials sector. See US Dollar chart below.
Special note about a change in the table below. In the past, have used the Vanguard Total World Index (VT) that includes US stocks. Strong action in US market can influence the index value, masking what is going on in the non-US markets. The table is now using the Vanguard Total World Index ex/ US Stocks (VEU). This gives a clearer picture of what the other world markets are doing. Same basic index, just without the US stocks and their influence.
The primary trend for all markets is up. This remains the strongest market plurality (markets moving together) since 2017. Even though all world markets are now positive up-trend, it is important to note that the four strongest markets are US, and the four weakest are non-US markets.
Performance comparison of the major world markets to SP500: The primary trend for world markets continues up. Markets have moved above the recovery highs made in late February. All of the markets in the table for the week were up. The strongest was Russell 2000 up 1.43%, and Europen Index (FEZ) up 1.18%, both more speculative sectors. The strength in the Russell 2000 in noteworthy since it had been one of the weaker markets.
China market index (FXI) Bellwether Market. Continue to watch the China market as a bellwether indicator. The China market was up some last week and continues in an uptrend. Note that China index is still down from its all-time high made in January 2018. Continued softness in the China market is a drag on other world markets.
Relative Performance in the US market sectors: Seven of the eleven US market sectors were up last week. Strongest sectors were Financial up 1.34%, Health Care up 1.29% and Industrial up 1.14%. Weakest sectors were Energy down 2.97% (again), and Communications down 1.32%, and Materials down 0.70%. Energy and Materials are impacted by a strong US Dollar. There was some shift last week into more defensive sectors. This was viewed by some commentators as more catch up than a major shift to defensive sectors.
Large Cap (SP500) vs. Small-Cap (SP600). Large stocks as represented in the S&P 500 index have made another new all-time high. Money flow indicates the major institutional investors have focused on putting money back into large-cap stocks. While the S&P 600 Small-Cap index has lagged, it and the Russell 2000 both closed the week up showing strength in the more speculative small-cap stocks.
Strength in the US Dollar. The US Dollar made another recover high from its early 2018 lows. US Dollar is approaching highs made in early 2015 and 2017. Strong dollar affects international trade, commodities like energy, and materials. The US energy and materials sectors were down again.
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 world markets are all in a primary uptrend for the first time since 2017.
As noted above, the four strongest markets are US markets. Money is made by investing with the trend and buying strength, and strength is in US markets.
Another new all-time high in the S&P 500. What was of note this week was the strong close and strength in the small-cap indexes. A good sign for the overall health of the markets. The long to intermediate-term looks good. Short-term indicators do show a short-term correction is possible as the markets bump up against resistance and digest the gains from the December lows. So do not be surprised if a correction running a few weeks gets triggered by one of the conditions listed below.
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).
Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.