7/29/2013: Dow 15521.97 | S&P 1685.33 | NASDAQ 3599.14 | Russell 2K 1040.66 | NYSE 9571.79 | Value Line Arith 3897.89
Psychological: Complacent. Once again it is becoming increasingly clear that far too many believe the stock market can only go up. What is most troublesome with this line of reasoning is it is exactly what everyone believed about the housing market in 2006 and tech stocks in 1999 just before both of those bubbles burst. If printing money actually created growth and wealth, all of the world’s economic woes could have been solved long ago. Although the Fed’s recent track record would suggest otherwise, liquidity injections via bond purchases are a temporary measure and they will end some day.
Fundamental: Mixed. Housing continues to show signs of life, for now. The recent rise in interest rates has trickled into the mortgage market and will likely dampen new and existing home sales numbers just when prices were beginning to make meaningful headway. The labor market is also improving modestly with weekly initial jobless claims hovering around multi-year lows. However, despite all the efforts of the world’s central banks, global growth is still shrinking. There are a few bright areas of growth, but in this day and age of global commerce, a few bright spots are not enough.
Technical: Consolidating. Another “hot” July is nearly in the record books, but the bulk of this month’s gains did come in the first half of the month and the market has done little over the past two weeks outside of making a few fractional new all-time highs. During the markets first half of July move, stochastic, relative strength and MACD indicators all reached overbought levels. Since mid-July these indicators have eased with the faster moving MACD issuing a sell signal and stochastics also turning negative. The market’s next move will likely depend more on what the Fed does or does not say than technicals, economic data or earnings.
Monetary: 0-0.25%. After triggering a brief correction in June simply by talking about the eventual end of quantitative easing, Fed Chairman Bernanke quickly reversed course and resumed his dovish ways. With soothing words flowing again from the Fed, the market also quickly changed course early in July and eventually rallied to new all-time highs last week. But, the Fed is meeting again this week where the topic of discussion is still likely to be about tapering bond purchases, not expanding them.
Seasonal: Bearish. August is the worst DJIA and S&P 500 month since 1987 with average declines of 1.0% and 0.8% respectively. In post-election years since 1953, Augusts’ rankings barely budge: #12 DJIA, #11 S&P 500, NASDAQ (since 1973), Russell 1000 and #10 Russell 2000 (since 1980). Average losses range from 0.4% for Russell 2000 to 1.6% for DJIA. NASDAQ has gained ground in just three of the last ten post-election year Augusts (1989, 1993 and 2009)