The Economy And Stock Markets – Winds Of Change?

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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.

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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!

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:

Economy And Stock Markets - Winds Of Change

OIL is still bearish and Emerging Markets may weaken:

Economy And Stock Markets - Winds Of Change

DOLLAR (USD) is still bullish:

Economy And Stock Markets - Winds Of Change

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:

Economy And Stock Markets - Winds Of Change



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Article by Stephen Aust, MarketCycle Wealth Management

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