How will the market hold up to factors like the #FederalReserve or the potential #TradeWar with China? In this month's Video Market Update, Ron Rough, FSA's Director of #PortfolioManagement, describes the current market landscape and what FSA is doing to prepare for it.
Posted by Financial Services Advisory on Wednesday, July 31, 2019
How will the market hold up to factors like the Federal Reserve or the potential trade war with China? In this month’s Video Market Update, Ron Rough, FSA’s Director of Portfolio Management, describes the current market landscape and what FSA is doing to prepare for it.
June Stock Market Update
Hello! This is Ron Rough with a Video Market Update for July. Stocks continued to move higher the second quarter, adding to the strong gains they had in the first quarter. However, it was a much choppier affair in the second quarter. If we go to this chart of the S&P, I’ve marked with this vertical line the beginning of the second quarter, and you can see basically stocks were up in April, down sharply in May, rebounding again in June. As we talked about many times, the stock market’s been in this trading range for quite a while. You can see here repeat in September of last year; again at the end of April of this year, we bumped into the same area for the market; and again here recently in June, we’ve been bumping into the same resistance place. So, as a trend follower, we want to see stocks in an uptrend before we have the portfolios fully invested. So this is what we’re waiting to see is can stocks break out of this trading range?
What’s interesting, though, is the S&P 500 is a capitalization weighted index. Even though it represents 500 stocks, it’s weighted by the size of the company. The bigger the company, the bigger the impact on the index. So the S&P 500 is really dominated by the 20 or 30 largest companies so it’s really not that representative.
Now let’s look at this other index. The Value Line Index represents 1,700 companies and is equal weighted, which means that a large company like Apple or Google has the same impact on the index as a company like Etsy. So you can see here the Value Line Index peaked back in September of last year, and then in April of this year, it was at a lower peak, and here in June, an even lower peak. So this pattern of falling peaks has us somewhat worried and cautious and one of the reasons that we haven’t gotten the portfolios back to fully invested.
So what’s causing this angst in the market? It’s basically two main reasons. One of those, of course, is the Federal Reserve. Are they going to in fact start lowering interest rates this year or are they going to leave rates the same? What seems to be off the table, currently, is whether they would actually increase rates again. The second big issue for stocks is the trade war with China. Are we going to have a resolution to that? Is it going to be soon? Investors are struggling with that information which is why stocks are having a hard time breaking to new highs.
So what we’re looking for, in summary, we’re pretty positive on the stock market. We’re just waiting for stocks to break out from this trading range that would be the signal for us to get the portfolios back to fully invested. So we’ll keep some powder dry until that happens.
Until the next update, thank you for watching, and happy investing!