Price
Source: dshort blog, Moving Averages: May Month-End Update
Jill Mislinksi writes the following at the dshort blog:
All three S&P 500 MAs are signaling "cash" and three of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard FTSE All-World ETF (VEU), and PowerShares DB Commodity Index (DBC) — are signaling "cash".Both U.S. and foreign stocks switched from "invested" to "cash" at the end of May. REITs have signaled "invested" since the end of January this year and treasury bonds have signaled "invested" since the end of November 2018. Commodities have signaled "cash" since the end of October 2018. As I mentioned last month, watch the WTI crude chart for signs of weakness. WTI price peaked for 2019 on April 23 at $66.30 ($US/bbl) and currently trades at $53.50 at the end of May. Let's highlight two more price charts to show the negative set-up we see in the market as we start June.
The NYSE composite (above) peaked in January of 2018 and has not matched the S&P 500 new highs in September 2018 or April 2019.
The Dow Jones Transportation Average (above) matched the peaks of the S&P 500 in January and September of 2018, however it has not reached new highs in 2019. Unfortunately, Reuters reported Saturday, June 1: China to probe FedEx after Huawei says parcels diverted. Is the transportation sector the next domino to fall in the escalating trade wars?
Sentiment
Source: CNN Business Fear & Greed Index
Last month I questioned if this index would hold or break 49 in May. Sitting at 24, "Extreme Fear", on the last trading day of May gives us our answer. Macroeconomic rate of change data appeared challenging on a year-over-year comparable basis for Q2 and Q3 2019 and then President Donald "Tariff" Trump acted. We'll discuss this more in our summary section. The F&G Index went from only one component reading "Fear" last month to this: No components reading "Extreme Greed" or "Greed", 1 at "Neutral", 1 "Fear" and 5 reading "Extreme Fear." The CBOE Volatility Index (VIX) rose during May, however it's current level is relatively calm given the significant change in bond markets and losses in stocks. During June will the VIX exceed this year's high of 25.45 (reached January 3, 2019) or head lower?
Valuation
Source: multpl.com
At the beginning of June, the overall Price to Sales ratio for the S&P 500 remains above 2 at 2.05, closer to the max. reading 2.20 than the min. of 0.80. For more on price to sales data please read John Hussman's sobering May 2019 monthly commentary. In the chart below, from his commentary, he shows us the median price/revenue ratio of S&P 500 Index components (weekly data) from 1986 to May 2019.
Click on graph to enlarge.
Source: Hussman Strategic Advisors
Summary
At the start of June, price signals, according to the Ivy Portfolio system, show "invested" for VNQ and IEF and signal "cash" for VTI, VEU and DBC. Sentiment reached "Extreme Fear" and valuation for stocks remains lofty. Obvious to many, now is not the time to load up on stocks. If inflation slows and GDP continues to slow (which is the worst macroeconomic environment for any economy) we can all minimize our pain if our balance sheets lack debt, especially revolving debt, and we have a comfortable cash cushion. For retirees this means one to two years worth of expenses in cash. For worker bees and business owners this means three months to twelve months of expenses in cash. I anticipate some investors will be selling bonds in June and buying stocks to keep their allocations on track. I'm intrigued to see how much, if any, impact this could have on markets.
Let's now spend a moment thinking about President Trump's decision to escalate trade wars with multiple countries. President Trump needs to look like he is enacting his policy agenda before elections in 2020. Currently, the democrats in the House of Representatives have stopped him from achieving his legislative goals. Second, he wants the Federal Reserve to lower rates before the next election, so if he can cause enough uncertainty he forces Powell and friends into lowering rates. Currently odds are increasing for a September 2019 rate cut, more than a year before re-election day. Let's end with a quote:
"Intelligent investing is not complex, though that is far from saying it is easy." - Warren Buffet
As always, wise investing my friends.
Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.--------------------------------------------------
Here's what I've been reading and watching recently:
- What If the Trade War Is Really Deflationary? (Bloomberg)
- The Near-Term Forward Yield Spread as a Leading Indicator:...(Federal Reserve)
- Not All Market Recoveries Are Created Equal (Schwab)
- U.S.-China Trade War: The New Long March (Guggenheim)
- Borrowed Time: Final Rate Hikes And Stock Market Rallies (Schwab)
- US ends special trade treatment for India amid tariff dispute (BBC)
- U.S. Banks’ Bad-Debt Pile Creeps Higher With Credit-Card Losses (Bloomberg)
- Opinion: The Fed’s numbers indicate the S&P 500 may be topping (MarketWatch)
- Student debt is preventing the US from having a normal housing market (Business Insider)
- Retirement Is Forced Upon Roughly One-Quarter of Americans (Bloomberg)
- Kim Swims (Netflix, Vimeo Preview) Amazing!
- Business Cycle’s Demise Greatly Exaggerated (ECRI)
