top of page
  • Writer's picturecornerstoneams

Solid Economic Growth Continues

CAMS Weekly View from the Corner – Week ending 11/3/2018

November 5, 2018

Our backdrop focus of looking for any chinks in the economic growth story continues here in this Weekly View.  We have an absolute necessity of solid and consistent economic growth lest our historically highly valued asset markets take on some notable downside trading action in order to pull valuation levels lower.

To pull them back to historically reasonable levels would require an eye-popping pullback far beyond the downside action we have experienced in recent weeks.  Remove solid and consistent economic growth from the landscape and we will be inviting the markets to show us how fast they can adjust valuations from historically high levels to historically reasonable levels.

While market volatility has taken over our topics of late we thought it timely to circle back and look at the economic landscape via the Gross Domestic Product (GDP) report that was released in late October.

There are several ways to look at GDP to help get a better sense of what it is offering about the economy at large.  One of said views is to look at GDP growth (or lack of) compared to year-ago levels.

This is consistent with how many look at their household income and/or business sales and profits in that we often observe how things look compared to the same time last year.

For the U.S. economy overall things are looking quite well – solid and consistent – just what highly valued markets need to help support them.


The above is a 10 year view of GDP growth with each bar representing the result compared to its year-ago level.

As the red arrow depicts we have been and continue to experience near clockwork consistency in the upward trending growth rate for the U.S. economy.

Going forward this is the type of experience our asset markets need to help support them lest we see the volatility of recent weeks become the norm brought on by inconsistent economic growth.

Markets

In recent editions we have shared market oriented charts of the S&P 500 as well as the S&P Volatility Index which is often referred to as the “Fear Gauge”.

The charts shared in those Views are still very much in play.  Said another way, we are not out of the woods by any means even though they have improved.  Our weekly chart of the S&P 500 has the red and black lines identified as significant price levels that the S&P 500 needs to re-attain and hold quickly if the stock market is to remain constructive.  (Click link to view:  http://schrts.co/j3LEBw)

We offered in our previous edition the Volatility Index was displaying characteristics of topping out which would reflect an easing of fear.  This past week that did occur and simultaneously the stock market found its footing a bit.

As stated this does not mean the current volatility episode is over but topping action in this Index is a historical piece of the puzzle that leads to increased stability in the trading action of stocks.  (Click link to view the Volatility Index:  http://schrts.co/5zRhSp)

The stock market is at a crucial juncture from potentially tipping over into a problematic scenario or to righting itself and moving upward for year-end strength.  The above links will help guide as to what the near-term answer will be.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

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.

1 view0 comments

Comments


bottom of page