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Does Consistent Economic Growth Equal Consistent Stock Market Growth?

CAMS Weekly View from the Corner – Week ending 4/19/2019

April 22, 2019

If you are a consistent reader of these Weekly View’s you may recognize a well established theme we present with each passing week which is a simultaneous monitoring of the economic backdrop as well as the general interaction of various markets.

We offer consistently the absolute importance of on-going economic growth to support our highly valued markets.  This can imply that if we have consistent economic growth all will be well in the stock market universe.  This is not the case.

The purpose of our focus on the economic landscape is to have a sense of whether the stock market will embark on a historic experience that is remembered for years if not decades – think down 40% plus in the matter of months.  Yes, the type of 2008-09 experience that many still recall with ease.  Remember the societal phrase “My 401k became a 201K?”

Historically, highly valued markets can and do react violently to the downside when growth is taken from the economic backdrop.  It was the lack of economic growth that turned into negative economic growth which pummeled the stock market a decade ago.  Back then, like now, the stock market was also highly valued and demanded growth.  Growth disappeared and so did the stock market.

SPX - 4.22.19

Click For Larger View:

The above chart depicts the S&P 500 for nearly two years.  Following the obvious red trend lines we see that in its wholeness there has been no trend.  We have experienced significant increases followed by significant declines.  Yes, the proverbial roller coaster market.

Welcome to our highly valued market landscape.  Collective market participants, in their obsession for growth, suddenly see issues developing that raise alarm bells and the selling begins in earnest.  Then, upon further evidence, said participants quickly bid prices back up to previous levels realizing they had merely seen the ghost of economic slowing/recession not an actual economic slowdown.

Through the entire process economic growth has remained solid and steady.  The employment market has been historic in its strength and is providing an on-going solid up trend in wage growth rates – the ultimate litmus test of a solid employment market.

As we can see in the recent experience shared above this does not assure a smooth stock market ride going forward.

For now we watch the black line as it had failed here before.  Will it be able to hold this line and ultimately trend higher from it?  For the stock market itself its behavior relative to this well established line in the near term months will prove instructive.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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