Marc Cuniberti: Rally indicators to consider
Is the stock market ready to fall or rocket to new highs? Although no one can say for sure what will happen, we can look back to historical precedents and see what has happened in the past to see if there are any clues.
Here are some tidbits to chew on:
The stock market is essentially in a 10 year run, interrupted by frightful falls – giving even the most steadfast investor fits of panic and trepidation. An historic run to say the least, it does give some concern, but who is to say it can’t continue?
With talks of a yield curve inversion in the news of late (longer term treasury yields lower than some short term yields), another cause for concern flavors the investing climate. Then there are the tariffs, talks of impeachment, and sabers rattling in the Middle East again. The proverbial “wall of worry” definitely comes into play. For those not familiar with the term, it is said the market climbs a wall of worry. It works something like this:
When investors are sure the markets will climb, it’s usually an indicator signaling everybody is “in,” and there is no new money to rally markets higher, so markets will fall. No worry means no more rally.
Conversely, the wall of worry means not all investors are fully committed and that there is cash on the sidelines which then can come into the market, further fueling an upward direction.
Margin debt is also an indicator of sentiment. Margin debt is the amount investors have borrowed from brokers to buy stocks. FINRA, the Financial Industry Regulatory Authority, publishes the current amount of margin debt. This statistic can harbor clues as to investor sentiment. It is thought the higher the relative margin debt, the more positive investors are that markets will rise, borrowing money to buy more stocks. Although down 6.19% from the previous month, margin debt inflation adjusted is still close to all-time highs at 555 million for the month of September.
Consumer price inflation is relatively muted, having decreased from six months ago according to the Bureau of Labor Statistics. Reported inflation usually spikes at market peaks so based on that fact, some might assume the market has further to run.
Oil prices jumped prior to the 1973-75 recession and the double dip recession in 1980. They spiked again before the recession in 1990 and tripled in price before the 2001 market rout. Oil set a record high at $147 a barrel in 2008, six months before the financial and market implosion which was an historic market correction. Although hitting a recent peak of $76 a barrel in October 2018 which signaled the brutal correction which ended late December of that same year, crude sits at a benign $58/barrel plus range in recent weeks (Yahoofinance.com). Far from a spike, this indicator is also possibly signaling no imminent danger of a market correction.
The US unemployment rate rose to 3.7% in June 2019 from a 49-year low of 3.6% in the previous month and the recent earnings from Wall Street so far are far from dismal, for Q3 2019 (with 23 of the companies in the S&P 500 reporting actual results as of Oct. 11). Twenty-one S&P 500 companies have reported a positive EPS surprise and 12 S&P 500 companies have reported a positive revenue surprise (Factset.com).
In summary, anyone looking for conclusive evidence of an imminent market crash certainly won’t find it here. That said, the market is comprised of billions of investors, with a multitude of cross currents influencing the decisions of novice and professional players alike. With the day to day movement of stocks representing the largest of social studies on the planet, its day to day movement and future direction is impossible to prognosticate. We can look for clues in historical data, and that may be helpful, but basing one’s investing decisions on the plethora of available economic and social statistics proves to be a most difficult and likely impossible endeavor.
Indices mentioned cannot be invested into directly. Consult a qualified financial professional for your investing needs and read the prospectus of any security you are considering. Investing involves risk and you can lose money. This is not a solicitation to buy or sell any security. This article expresses the opinions of Marc Cuniberti and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is http://www.moneymanagementradio.com. California Insurance License # OL34249
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