January Market Commentary for 2020
Mid January Update – Without sounding like a broken record the Monster Rally which we warned about in September continues.
Naturally we might expect some sort of pullback which would only be normal, but not so fast Jose, get your hands of the sell buttons! Over the last week there is a plethora of financial press warning us about the slowing of markets and the economy. However, I do not see any evidence of this, so just looking at the existing market conditions, it is possible this market may continue to grind higher longer than anyone would lead you to suspect. We don’t want to be bullishly bind, yes we might be a bit “stretched” and some profit taking, or some minor pullbacks of a few percent would be normal, or just a sideways digestion. Look at price not news, and of course if the facts change, so will our outlook! I will send out some more interesting data in subsequent bulletins.
The market is in a confirmed uptrend, with only 2 distribution days on S&P 500 and Nasdaq, market breadth continues to expand, and individual leading stocks continue to point to an imbalance of demand for stocks. The indexes continue to move higher, however still have not given us a “parabolic look” on a stock chart.
The S&P 500 may appear to be “stretched” Since early October it is up 13 of 16 weeks in a row and is about 11% above its 200 day line (a level that might cause it to retrace). The NASDAQ composite is up 14 of 16 weeks and also may appear to be “stretched” it is up 14.5% above its 200 day line. In “normal” markets (if there is such a thing) the market will pullback, in strong bull markets these levels can be sustained for a while.
The Russell 2000 small cap index just broke out in late November retested the breakout in early December and is still about 2.5% below its September 2018 highs, so this index is not stretched, and we see a similar scenario with the S&P 600 small cap index.
The S&P 400 midcap index just surpassed its September 2018 highs this week, and might just be ready to run.
The leading industry group is the biotech group (led by Vertex VRTX and Amgen AMGN) which can be viewed as the most speculative in nature, and is joined by semiconductors, internet, software stocks, building, financials, and medical equipment stocks. All strong growth industries.
Widely held mega cap stocks continue to show demand through positive price action, trillion dollar companies like Apple (AAPL), Micorsoft (MSFT), and now Alphabet (GOOGL) continue to be bought. If the market were to turn, these stocks would be sold into these liquidity events.
Hot growth names continue to surpass psychological price levels, normally after good runs these psychological price levels should act like resistance so far we have not seen this. Applied Micro Devices (AMD) above 50, Tesla (TSLA) above 500, Apple (AAPL) through 300, Solar Edge (SEDG) above 100, Beyond Meat (BYND) above 100, Shopify (SHOP) through 400 , Alibaba (BABA) through 200, Servicenow (NOW) through 300, Adobe (ADBE) though 300, Facebook (FB) through 200, even Nike (NKE) above 100, Lam Research (LRCX) above 300, MasterCard (MA) through 300, Visa (V) through 200, and newcomer Lukin (LK) above 50, you get the picture this list can go on and on, the point is this market is still in imbalance of demand.
Market breadth as measured by our proprietary indicators continue to expand and improve, as does the stock to bond ratio. Thus we are in a bull market, consolidations and minor pullbacks are to be expected, but for now there still is an imbalance of demand for stocks shares, as earnings season once again is upon us, we will observe the market reactions.
At CrossPoint Wealth, we take each day, month and year as it comes rather than trying to predict the unpredictable. What we know is that the investment markets can be fickle, but ultimately, they are a wealth-generating engine that is hard to beat—so long as you remain calm, disciplined, diversified and have a SELL discipline. In sum, we’ve got your back and will always do our level best to help you secure your financial future.
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