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Two Lines in the Market Sand

CAMS Weekly View from the Corner – Week ending 10/19/2018

October 22, 2018

Recently we have been chronicling the volatility in the stock market brought on in large part from the increase in market based interest rates such as the 10 Year Treasury bond.  This increase in rates has a direct relationship back to our long-standing watch of the solid economic strength over the last year in particular.

The economic strength has worked its way through to the employment market whereby said market is so tight we are now solidly in deficit of employees relative to the need of employers from industries across the economy.

This all spells concerns of an overheating economy that plays out in the employment landscape to the point of a near bidding war breaking out for labor services.  With such a scenario the concern points to a wage/price spiral fear whereby wage growth rates escalate higher to a point of spiking higher.

The resulting price spiral fear is that wage growth rates will impact overall price growth rates economy wide in light of the explosive increase in household incomes if the tight employment market continues.

This is not a concern that Main Street will be getting pay raises but rather that said pay raises will not trend higher but spike higher resulting in spiking interest rates across the board to a point whereby it would impact the economy negatively.

Importantly, our various asset markets are historically highly valued that require on-going solid economic growth to support them.  Take away growth and these highly valued markets will be hanging on a limb so-to-speak.

Click for Larger View:

The above chart is a 4 year chart of the well recognized S&P 500 Stock Index.  Each bar depicted in the chart represents one week of market trading.  With the 4 year view and the weekly bars it allows us to quiet the noise of volatile trading and see what the market itself is offering.

The central focus here is simply asking if there are “personality changes” from the market relative to recent trends.

The red and black lines in the chart point to important personality traits of market behavior.

The red line is a rolling 50 week moving average line (average prices of the previous 50 weeks on a rolling basis) that has acted as trend line support throughout the market uptrend.  Short blips below are fine – as recent history reflects – but prices should remain above this line if recent market personality traits are to remain intact.

In addition, the black line acts as a secondary line of support whereby the stock market was able to hold these levels from late spring through the summer.  If these lines are broken to the downside then the market will be telling us concerns are growing and more stormy seas lie ahead.

Importantly, as of this writing, these lines of support continue to be held by the S&P 500.  The days and weeks ahead will provide critical information as to whether the stock market can continue to hold these important levels.

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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