Weekly Market Commentary
with Scott McCaghren
This week we will be evaluating the marketplace via written commentary (flashback to several years ago!)
We find the price action of the major indices to be very interesting throughout this week. Let us begin with the general fundamental perspective then move into general technical analysis as well.
Fundamentally speaking, the monumental strength from the U.S. Dollar, against global currencies, should be creating significant headwinds for not only the equity and commodity markets, but seemingly treasury markets as well. The reason we bring this up is actually a positive due to the fact that the majority of major domestic equity indices are within a few percentage points of new all-time highs despite our view of what should be a more stifling landscape for returns.
The laggard amongst the major indices lies in the Tech oriented NASDAQ which currently trades around 8% from record levels set just over 1 month ago. We are seeing an increase in volatility due to corporate earnings and guidance releases over the past several weeks into the next several. This has not been much of a factor towards our holdings yet important to keep an eye on as these earnings tend to have an impactful influence on the overall marketplace.
We maintain our mid-term viewpoint that the equity markets will continue to excel, simply due to the low interest rate environment that has been promised to persist for the next 30-months. Zero-bound interest rate levels mean little-to-zero competition for investment dollars which will in-turn result in increased domestic and global inflows into U.S. equities. Let us remind ourselves of the simplicity behind “quantitative easing” or “yield-curve control”. Lower for longer means a propped-up stock market; however, sustainability can and will be certainly questioned. We believe that there will be plenty of forward guidance based on monetary policy as well as real unemployment and inflation figures that will allow us plenty of time to re-evaluate the current allocations.
We have mentioned in several past podcasts of the pending re-balance, but ultimately decided to weather the earnings cycle before making portfolio changes. This allows for injection of cash at advantageous levels that have occurred across several potential positions that we believe to be value acquisition opportunities.
Technically speaking, we will keep the technical analysis brief. Outside of the aforementioned NASDAQ, the other major indices are maintaining quite the consistent and attractive trendline higher over a 12-month period. We have seen multiple periods of slow growth followed by short bursts of volatility. We have always and will always be of the mindset that this is absolutely necessary for the sustainability of long-term growth. For lack of a better analogy, wildfires are devastating in the short-term but necessary to promote new vegetative growth for the long-term. The marketplace is no different from a technical perspective. In addition to the general upward trajectory, the S&P, DJIA and Russell all rest on tier 2 deviations with piercing bullish candlewicks confirmed as of today.
To summarize, we remain overall bullish for the next six weeks as we head into the month of May. We anticipate May requiring some tactical rebalancing based on historical seasonal statistics (never fails). We maintain our longer-term outlook for equity markets being the main beneficiary of lower interest rates as stated above. Until this changes, the focus is on stock selection that meets our requirements of expected return versus standard deviation (risk). In addition, we believe that inflationary figures other than CPE metrics will be necessary to track in order to prepare the portfolios for potential commodity and/or currency exposures.
As always, we continue to monitor all equity, treasury, commodity and currency conditions in order to efficiently deploy capital as well as protect invested assets.