The rally that has taken hold this year has been very strong, but equally perplexing. As discussed in recent articles, it has come amidst falling earnings expectations, warnings from the bond market, and mixed economic data. In addition, this move higher has come as investors move money out of equities …
Article Category: Stocks
At the end of each quarter J.P. Morgan puts out their so-called “Guide to the Markets,” which includes a wealth of information about the market and economy. The information isn’t the most timely, but it helps investors wrap their arms around many key data points.
There are a handful of charts that I’d like to discuss today, but before we do that let’s take a quick look at the technical condition of the stock market.
I’ve been sitting here parsing through all kinds of economic data trying to make the case for a bear market, and I’ll be honest – it’s tough. There just aren’t many data points that portend a rolling over of the business cycle, or primary trend.
There are of course a few, such as the declines in housing starts and building permits (shown below), but other than that, most leading indicators remain in firm uptrends (the S&P 500 being the notable exception).
Let’s begin today’s note with a quick update on the S&P 500. Two weeks ago, on October 30th, I suggested that a possible short-term bottom was coming into view based on relative price action in the VIX and small-caps.
As it turns out, the October 29th bottom did hold, and the S&P subsequently rallied back up to where it began its second leg down (at approximately 2815). From there, we had three down days of increasing magnitude, followed by today’s attempt at a rally.
Last week we walked through a variety of data points to reinforce the fact that the U.S. economy remains strong. With that as a backdrop, today I’d like to discuss some of the concerns that are permeating the market, particularly what’s going on with the Federal Reserve.
As we walk through this, there are two specific items I want you to keep in mind. First, we need to be viewing all developments through the lens of corporate profits.