What happened last week.
What we're watching for next week.
The Stock Market
In spite of all the political and geopolitical drama, the market is only down by 1.3% from its high-water mark. We could get there on Monday if the bulls have the will to do so.
The chart below shows the track of the market since the last high on July 26 of this year. We've been stuck in the mud for 84 days, and it's about time we made another push higher, don't you think?
Chart 1. Market action since the last high
The Economy
The good news: the US economy is still expanding. The recession is not here yet. The bad news: US growth is slowing, China growth is slowing, earnings are in a recession, trade deal is still elusive. This could all turn around, of course, but the trend is weak.
Chart 2. THE CONFERENCE BOARD ECONOMIC OUTLOOK, 2018-2019-2020
Winners & Losers Year-to-Date
Chart 3. Asset Classes
Leading
- Real Estate
- Precious Metals
- Growth stocks
- Long-term bonds
- Value stocks
Lagging
- Short -term bonds
- Commodities
- TIPS
- Emerging Mkt Stocks
- Junk bonds
Chart 4. Equity market sectors
Leading
- REIT
- Utilities
- Tech
Lagging
- Energy
- Health Care
- Industrials
Chart 5. Individual stocks
Leading
- Chipotle
- KLA-Tencor
- Copart Inc.
Lagging
- DXC Technologies
- Macy's
- Nektar Therapeutics
Charts 6 & 7. S&P 500 with Key Markers
The left chart shows the return for the S&P over 4 time frames. The right chart shows how far the market is from 4 key markers. Both charts have seen improvement lately.
Final Thoughts
The other day an old friend asked me a question that made me a little uncomfortable, but it's a great question. He asked me how much longer I would continue to fight the tape. This didn't come from an internet troll who just wants to start a Twitter war. This is someone I've known, worked with, and respected for 20 years. It got me thinking.
Do I really come across as someone who is stubbornly bearish and unwilling to go along for the ride to higher highs? I guess I do, at least to some people who read my work. But there's an important distinction between being an outright bear, and being a cautious bull, as I claim to be.
Anyone who reads my articles from start to finish, rather than skimming the headlines, will know that I'm 65% long and 35% in cash now. I've been positioned this way for almost a year, and my personal portfolio has lagged behind the market as a result. I'm o.k. with that.
The tone of my articles can sound bearish, but my advice to clients reflects my caution and concern for what lies ahead. If the economy or the market begin to show real and sustainable improvement, I will change my allocations to reflect that, and I will be open and transparent about it with my readers.
If you want more info about how to set up a solid Plan B, see my articles on the subject here and here and here.
For a full analysis of the probability of a bear market or a new recession, check out my Monthly Intelligence Report.
As always, if you like what you see, or have suggestions for improving this recap, leave a comment below, or email me at info@zeninvestor.org
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And our free online courses here.
Your 65% and 35% is right for this market. Maybe even better to get 50% and 50%. There is a lot of reason for market to go higher, especially when Fed is printing money again.
But when market is this high anything can come out of nowhere and create a tremendous fall.
Then that 35% or 50% in cash will buy a lot of great stocks at wonderful prices. “buy the crash and sell the euphoria.” Reading the tape does not tell you what can happen in the future.
I like to buy when market has chance to go up 100% or more not 10% and that only happens after a good crash. Meanwhile I sit with BB and BBB bonds getting 7-8%. from companies with flat earnings but great cash flow.
Howard