Winds of change? It’s more like a small breeze of change. Often the economy and markets do nothing different for extended periods and then, all of a sudden, there is an inter-connected change.
This is what is happening as we approach June, 2017:
- Inflation was growing steadily but it is now scooting sideways (see charts below).
- This is causing commodities, which are inflation dependent, to loose their bullish, late-stage appeal. The breadth (underlying strength) of both gold and oil has begun to fall.
- Emerging markets (commodity producers), which had caught a short-term bid, are likely to lose strength, all except for those countries that concentrate on technology production, such as India.
- As inflation and commodities begin to weaken this is slowly rotating more (temporary) strength into U.S. Treasury-bonds.
- Bonds are currently oversold and are likely to get a bounce within the next couple of months. We are close but not yet there.
- We are entering the (temporary) seasonally weakest period for stocks yet the underpinnings of the stock market are still remarkably strong and the calculated chance of a recession two months out is less than 4%, which means: NO RECESSION. (The two prior recessions were in 2000 and again in 2008 and both had drops of over 50% for the S&P-500 and much bigger drops for most other stocks; MarketCycle was correctly positioned during both of those drops.)
There are some periods, such as in 2014, where both Treasury-bonds and stocks are bullish and temporarily rise together. This is very good for investment accounts since both assets would be generating profits while the Treasuries would also protect against a drop in stock prices, a win/win situation. Again, we are not yet at that stage!
In his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More
MarketCycle does NOT make investing/trading decisions based on trendlines (as below) but we do look at them daily (on over 200 individual proprietary charts).
INFLATION is now moving sideways (this proprietary system represents a lot of data put into one line):
GOLD is still bearish:
OIL is still bearish and Emerging Markets may weaken:
DOLLAR (USD) is still bullish:
STOCKS are still bullish. Stocks poked their head above overhead resistence (see triangle) which makes it more probable that they repeat the attempt and then move higher:
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Article by Stephen Aust, MarketCycle Wealth Management