It was another week where the stock market surprised the majority by continuing higher despite the already lofty levels of the major averages. The S&P 500 broke through short-term resistance on Wednesday and closed the week just below the 1800 level.
Oftentimes, there is selling when a market average reaches a round number like 1800 but it is also possible this time that a strong close above this level will move more money off the sidelines. Mutual fund managers have a relatively high level of cash on hand and many are not keeping pace with their benchmarks. A failure to match or exceed the benchmarks could jeopardize their year-end bonuses.
Many continue to voice concern over the high level of bullish sentiment, which implies that the smaller investors have joined the party. But Charles Schwab CEO Walter Bettinger commented on CNBC that only about half of their clients think it is a good time to be investing in equities. Furthermore he said "Our clients are engaged, but they're very cautious about the markets overall."
In last week's column, I shared the reasons why I did not think a bubble was forming even though the market is overextended. This is especially true when you look at the investing public as most are now scared to death of the stock market, unlike 2000.
Click to Enlarge
Just a year ago the stock market was bottoming after the post election correction as the S&P hit a low of 1343.65 on November 16. This date it labeled on the chart and shows that one of the star performers since that low has been Japan's NK225, which is up over 63%.
The chart of the NK225 shows that resistance at line a has just been overcome even though some are having doubts about their economic plan. From a technical standpoint, it was clear in early 2013 that both the NK225 and Japanese yen had undergone long-term trend changes that should last many years. This is still my view.
The Spyder Trust (SPY) and German DAX show very similar patters as both are up over 31%, just half of Japan's gain. The emerging markets as measured by Vanguard FTSE Emerging Market (VWO) is now up 2.3% since the November 2012 lows. Since I do feel a more meaningful correction is likely in the next few months (see What to Watch), it should present a buying opportunity.
But should you just concentrate on stocks in the US or should you also look elsewhere?
The Vanguard FTSE Emerging Market (VWO) was discussed in more detail in last August's A Contrary Bet for 2014? as I though it might be a star performer in 2014 and advised a dollar cost averaging strategy to get invested. As it turned out, VWO bottomed the following week and had a nice rally into the late October high, but then dropped as many turned became skeptical of the group.
Click to Enlarge
The weekly chart of VWO shows that it may finally be ready to move significantly higher as last week it dropped below its quarterly pivot at $40.32 before closing higher. The OBV had broken its major downtrend in early October and has turned up this week.
Part of my rationale for looking at the emerging markets was that I thought that the US and Eurozone economies were actually doing much better This growth, I felt, should spread to the emerging market economies in the coming year.
Argentina and Dubai have been the two top performers in 2013, up 86.4% and 72.6% respectively, with the US just below Greece on the list. This would have been tough to predict at the start of the year as the wide range of data gives you the ability to predict the US market's direction. Though a sharp correction is possible before the end of the year, we should finish the year with the double-digit gains I was looking for last December.
Though there has been some softness in the recent economic data for the Eurozone lately, which their rate cut may offset, their economies seem to be in an improving trend. The JP Morgan Global Manufacturing PMIT rose to 52.1 in October, which was a 2?-year high.
Click to Enlarge
In an early November press release they stated "The data signaled expansions in the US, the euro area, China , Japan, the UK, South Korea, Taiwan, Canada, Russia, and Brazil." Of course Russia and Brazil have two of the worst-performing stock markets this year, down 5.8% and 15% respectively.
The Global PMI Output Index from Markit points to 1.9% global year-to-year GDP in the 3rd quarter, up from 1.1%. Their chart shows the sharp upturn in their Global PMI Index, which is now very close to its downtrend, line a. It does show a pattern of higher highs but the global GDP does not.
Click to Enlarge
The data on the US economy last week was generally weak as the Empire State Manufacturing Survey dropped into negative territory. Imports also were down sharply due in part to a contraction in petroleum-based products. The Industrial Production also slipped to -0.1% but the manufacturing sector component did show nice growth.
On Monday, we get the monthly Housing Market Index, followed by more housing data on Wednesday with Existing Home Sales. The homebuilders bounced late last week and finally show some signs of bottoming.
The Employment Cost Index is out on Tuesday with the Consumer Price Index, Retail Sales, and FOMC minutes on Wednesday. In addition to the jobless claims on Thursday, we get the Producer Price Index, the PMI Manufacturing Survey, and the Philadelphia Fed Survey.
It may take some disappointing numbers to start a market correction as the public again question the economy's health. Monthly readings are usually not important to the big picture as it is the trends that are important.
No comments:
Post a Comment