***Halftime Report on Markets and Forecast for 2nd Half***
The below chart shows the year-to-date performance of the Three Major U.S. Indexes through June 30, 2017.
The Dow Jones Industrial Average (green) up +8.03%, the S&P 500 index (black) up +8.24% and the tech heavy NASDAQ Composite index (red) up +14.07%.
See the next chart below.
The MSCI Emerging Markets Index (green) up +17.22%, the MSCI EAFE index (black) up +12.49% and the STOXX Europe 600 index (red) up +4.97%.
What kinds of US stocks are doing well?
Let’s look at U.S. Large Cap Value stocks vs. U.S. Large Cap Growth stocks.
Some Large Cap Value stocks: Microsoft, J&J, Exxon Mobil, Berkshire, JP Morgan Chase, GE
Some Large Cap Growth stocks: Apple, Alphabet (Google), Amazon, Facebook, Comcast, Home Depot
A great way to make this comparison is to look at a relative strength chart that compares Growth to Value. See the 3y 6mo chart below.
When the green line below is rising, Growth Stocks are in Favor; when the green line is falling Value stocks are in Favor
I added Red Lines to the below chart showing when Growth was strongly in favor. Growth was in favor April 2014 – late 2015; and so far in 2017.
Notice the peak in late October 2016 and how the chart collapsed favoring value stocks, that’s the bullish move in financials (Value) upon the Trump election.
Below is a 3y 6mo performance chart.
Over this 3.5 years, the Dow Jones US Large-Cap Growth index (green) was up +42.63%, the S&P 500 index (orange) was up +32.33% and the Dow Jones US Large-Cap Value index (green) was up +25.74%,
Interest Rates remain tame. In the below chart you can see the 2-year history of the 10-year US treasury yields.
Note the green lines – a downward sloping channel that interest rates have remained in since December 2016.
The S&P 500 index has been in a strong uptrend since February 2016, note the green line.
Note the red circle, an overbought / oversold oscillator, a short-term indicator, is showing US Large Cap stocks are not in a current overbought condition.
Market Forecast - In the Short-Term
Pretty much anything can happen.
Market Forecast - In the Long-Term
Interest rates will remain low for a long time
Energy prices will remain low for a long time
In an environment of low interest rates and low energy prices, both GDP and Stocks, we believe, will both continue to grow.
In this environment, we would not be surprised to see in the next 15-20 years, or perhaps sooner:
US GDP which is now $19 Trillion, to be at something like $38 Trillion, and
The Dow Jones Industrial Average now at 21,349.63, to be at 42,000.
Here is US GDP for the past 20 years - from $8.6 Trillion to $19.0 Trillion
Below - Past 20 years - Chart of the Dow Jones Industrial Average (black), West Texas Intermediate Crude prices per barrel of oil (red) and 10-year US Treasury yields (green).
No doubt, we believe, low energy prices coupled with low interest rates are bullish for stocks.
After all, THE TREND IS YOUR FRIEND.
Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns.