Well, She Held – with a lot of FED Speak to Assist
CAMS Weekly View from the Corner – Week ending 7/12/2019
July 15, 2019
For some time now we have intermittently chronicled the behavior of the stock market through a two year view of the S&P 500.
The bottom line observation has been a focus on the stock market’s inability to move higher and actually trend rather than remaining within a broad range whereby it would go to the high level only to reverse and move toward the low level.
A sign of a truly healthy market – especially when viewed through a two year lens – is a trend whereby higher highs are achieved and then when it does correct back, a higher low is actually displayed. This leaves the market, when viewed through a chart, displaying a series of stair step type upward movements.
Realizing nothing goes up or down in a straight line, the pullbacks that display a “higher low” is critical in offering a truly healthy behavior.
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The above picture depicts our well worn on-going chart of the S&P 500 over the previous two years. The last time we shared the S&P had pushed back up to and through the black line. We offered that if the market was truly healthy it should not go below it again. Per the view above we can see it in fact trended upward.
In the previous several weeks the Federal Reserve has been the near focal point for market participants. This kicked up in earnest in mid-June when the policy making committee offered a more accommodative view in regards to their near-future interest rate expectations. In FED-speak this means rate cuts.
This past week FED Chairman Powell offered in testimony to Congress the economic outlook has not improved since their last policy making meeting. Market participants ran with this narrative as further evidence rate cuts are coming. With this, our black line has been solidly exceeded via the FED Chairman’s comments.
In the same week Chairman Powell informed Congress the economy has not improved we also received some economic results.
The Department of Labor in their JOLTS report offered for the 15th consecutive month there are more job openings than there are job seekers and the Weekly Unemployment Claims remain near multi-decade lows – together both reflect a healthy employment market. On the price inflation front the inflation report reflected anything but lower trending price levels in the U.S. economy.
In fact, the Cleveland District Branch of the Federal Reserve System reported their well known Median Consumer Price Index has remained at the steadfast level of nearly 3%. This Price Index is often viewed as an excellent barometer for price levels as it takes out volatile swings.
Price inflation remains while the employment market is rock solid. Those two backdrops are usually not associated with the need for interest rate cuts.
We do have a trending stock market in light of the Federal Reserve’s narrative but what these expected rate cuts do to an economic backdrop that is quite healthy should prove interesting.
I wish you well…
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.
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