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@theMarket: Markets Hold on to Weekly Gains

By Bill Schmick
iBerkshires Columnist

It was a struggle, but the stock market indexes stubbornly refused to cave in despite some really horrendous earnings reports. A battle is being waged among bulls and bears right here, right now. Who will win?

Remember last week when I reported that earnings have been revised down so low that it was practically impossible for most companies to disappoint the market? Well, that proved to be not quite accurate. Not only did some really big companies in industry, technology, banking and finance fail to beat, they actually came in less than anticipated on both earnings and revenues.

Although traders punished these companies' stock prices in after-hours trading and through the next day, many of these fallen angels quickly rebounded and are trading higher than before their dismal results. How does that work, you might ask?

The bulls would tell you that quarterly earnings results are like looking into a rear-view mirror. Instead, those who expect the economy to strengthen in the months ahead, argue that any sell-off in stock prices is just like looking a gift horse in the mouth. If one believes there will be a fairly sharp uptick in the economy soon, than that explanation makes sense.

The problem is that there is no "economic evidence" that the bulls are right. But when have traders needed facts to justify their trades? A better explanation, in my opinion, is that in today's low volume markets, any group of speculators can do what they want to any individual stock with impunity. Short it down 3 percent one day; drive it up the next day and so on. It is why owning individual stocks are a much riskier business today than it has ever been.

Overall, two out of the three benchmark U.S.  Indexes managed to eke out a gain for the week. NASDAQ was the exception, losing a few points overall. The real issue for the markets is the lofty price level we have now reached. We are almost 13 percent higher from the lows reached last quarter. Readers might recall that I urged you to hold on through the downturn, fully expecting the S&P 500 Index would regain their losses. My target for the index was 2,100. The equivalent level in the Dow is around 18,000. Both hit my targets. The S&P 500 actually touched 2,111 on Wednesday, but fell back before the close. Since then prices have been churning, a natural reaction to breaking to new highs for the year.

Stocks could continue to chop until the FOMC meeting next week. I don't expect anything negative to come out of that meeting, just more "dovish" talk about moderate growth, their "go-slow" policy on interest rates, etc. In the past, the markets have usually risen after the meeting. In this case, we could actually touch or break to new all-time highs if the markets determine there is just enough cheer within the Fed's comments.

On another important subject, the oil price has defied the investor community by doing what was most inconvenient for the most number of people. The failure of oil producers to arrive at a production freeze agreement in Doha last Sunday should have caused oil to decline substantially, or so Wall Street thought. Instead, after a 6 percent decline last Sunday night, oil rallied back and actually forged ahead this closing close to the years' high.

However, it was the U.S. dollar and not oil that has influenced the market this week. The greenback has been falling recently. Traders have been selling it, believing that our central bank will hold off on hiking interest rates, at least until June. Usually, a country's currency rises if traders believe interest rates in that country will rise. Now, since many assets (such as commodities and oil) are priced in dollars, lots of prices are tied to the fate of our greenback.

Commodities, for example, have risen, as have emerging markets recently, on the back of dollar weakness. Certain sectors such as energy, basic metals, agricultural goods and precious metals have been the leading sectors in the overall stock market in 2016, after languishing for years because of the dollar's strength. The problem is that if the dollar reverses on the back of an interest rate hike by the Fed (possibly in June), what will happen to all of these commodities and stocks?

It is one reason why I caution investors to temper their enthusiasm when considering these red hot areas of the market. The gains have been fun while they have lasted, but at this point most of the easy money has been made. Don't chase these sectors. You may end up holding the bag as the early buyers cash in their chips.
 

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Economy Stronger, Stocks Weaker

By Bill Schmick
iBerkshires Columnist

Investors can expect the stock market to carve out a new trading range over the next few weeks. The good news is that range will be higher than it has been all year. The bad news is that we should not expect a repeat performance of March.

March was a good month for the S&P 500 Index. Stocks gained about 3 percent, and as of today, are positive for the year. Friday, investors worked overtime as they digested a slew of data.

The day kicked off with employment data which was good: 215,000 jobs gained, while hourly wages increased by 7 cents an hour. And more Americans are looking for jobs.

The bad news was that we are still losing jobs in the manufacturing sectors, since just about all the gains were in the service economy.

Beyond that, we received more data on everything from construction spending, the PMI (Purchasing Managers Index) to domestic vehicle sales and plenty more. I won't bore you with the details. All you need know is that in total the data revealed an economy that was plugging along at a roughly 2 percent plus rate or slightly better.

In the past, I've warned readers not to hang their hat on any one economic data point.

While economists might be cheered or disappointed by one month's group of statistics, the facts are that all these numbers are revised more than once (up or down) in the weeks and months ahead. What stock market investors need to know is if any of these data points would make the Fed hike rates sooner than expected.

The answer is no. The Fed is on hold in their plans to raise short term interest rates until the economy gives definite signals that we are growing faster than the present rate. We are not.

The Fed's brief is both keeping inflation in check and insuring a healthy labor market. Given moderate growth and employment gains it appears to the Fed that the country is in a sweet spot.

As such, the dollar will continue to remain in a trading range, as will bonds, and to some extent, the stock market. Here's the thing: nothing has changed as far as the well-being of the U.S. economy over the last quarter. It is why I did not advise anyone to bail out of stocks in January or February. Just because the market was having a hissy fit at the beginning of the year, it is no reason that you should have one, too.

You might ask, why then was the stock market down on Friday in the face of good or at least in-line data points? Look to oil for a reason. Word from Saudi Arabia's oil minister this week is that the production freeze by them and others will depend on whether or not their arch-enemy Iran also agrees to a freeze.

That stance is understandable given that both countries are at loggerheads in the Middle East. At the same time, both parties know that sanctions have just been lifted on Iran's oil production by most importers of oil. That country is only now trying to make up for years of lost production and won't tolerate a freeze on that effort. As a result, oil dropped almost 4 percent on Friday.    

As I have written before, the stock market is still held hostage to the oil price. The OPEC meeting is supposed to happen this month and it is natural that investor anxiety will heighten as all parties to the negotiations stake out their opening positions. That will make for a lot of ups and downs in the oil price and will have a subsequent impact on stocks.

It is why I believe that this month we won't see much progress in financial markets. After that, we will enter the presidential convention period. That too may keep a lid on equities into the spring.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Fed-Driven Rally Grinds Higher

By Bill Schmick
iBerkshires Columnist

Just when you thought it couldn't get any better, the Federal Reserve Bank gave investors everything they wanted this week. As a result, the indexes racked up their fifth week of gains in a row. Could there be six?

A combination of events has unfolded over the last few weeks that have driven the markets higher. A potential bottom in oil and its subsequent rise to over $40 a barrel has provided support as well as fuel for stock gains. Given my belief that "where oil goes, so goes the market," it should be no surprise that the stock markets have now regained all the losses suffered in 2016. Oil, by the way, is also at around the same price it was at the beginning of the year.

This week after the Federal Open Market Committee Meeting (FOMC), the U.S. central bank announced that they would keep interest rates the same. They also lowered their guidance on the number of times they anticipated raising the Fed Funds rate this year from four to possibly twice. Traders read those comments as bullish for stocks.

Readers may recall last week's column where I pointed out that the indexes had reached a critical level. In order to advance, the stock markets had to break through their 200 Day Moving Average. They did. The S&P 500 Index decisively moved above 2,019 and the Dow breached its 200 DMA as well. Since then stocks have methodically gained ground.

By now it should be clear to you that none of the bearish predictions that panicked investors over the first two months of the year have come true. As the markets go higher, the very same talking heads that were predicting markets would go much lower are now changing those forecasts. Most of this noise occurs within the financial media. You do yourself no favors by paying attention to it. The dribble you receive from television shows or emails from hucksters who are regularly predicting the end of the world is the worst kind of information.

Stocks will continue higher for now, although pullbacks will certainly occur with regularity. As a potential target, I would guess that we have a good shot at regaining 2,100 on the S&P 500 Index.  We may even touch the old highs (S&P 2,134) or close to it. But that does not mean that all is smooth sailing for the remainder of the year.

Do not be surprised if the averages decline again sometime this spring or summer as election fears spook investors and traders alike. In hindsight, I believe this year will be remembered as one of the most volatile in recent history. As such, you should carefully review your risk tolerance.

The last five years of positive (and outsized) gains that the stock market has delivered may have lulled you into a dangerous level of complacency. Historically, stock investing has not been for the faint of heart. This year has simply provided a reminder of that fact. In many cases, you may have fallen prey to "risk creep" or the tendency to become more and more aggressive in your investment choices as stocks climbed higher. It is time to revisit that attitude and those investments.

As I have written in the past, this is not your father's stock market. Central bank policies worldwide have created an entirely new playing field. It is a game whose rules and results are both hard to predict and may have consequences that no one imagines right now.

A brief look at today's currencies, for example, illustrates that point. Central bankers have engineered interest rates and quantitative easing in an effort to grow their economies and goose exports. But these same policies seem to have had the opposite impact. Negative interest rates in Europe and Japan have actually led to stronger currencies while our own policies appear to have softened the dollar's strength. None of this was in the game plan and yet it is happening right now.

Gold seems to be a beneficiary of these actions. Speculators, unsure of why and what will happen to currencies next, are flocking to precious metals as a way to protect their money or at least hedge their currency risk. As such, gold has proven to be one of the best performing assets thus far in 2016.

However, that does not mean it will continue outperforming. At any time, new central bank policies might cause this profitable trade to unwind. The potential for a sever downdraft in prices is high. Investors need to be able to weather 1-2 percent changes in price on a daily basis. Can you stomach that kind of volatility?

Over in the oil patch, price gyrations are even more pronounced. Sure, this week we have seen oil gain anywhere from one to 5 percent on a daily basis. Next week, if some oil minister somewhere shoots off his mouth, we could just as easily see declines of that magnitude. The point is that there is no way of knowing what happens next. Therefore, you need to own a portfolio that you can live with in this kind of environment.

We all wrestle with fear and greed. A more defensive portfolio will almost automatically guarantee you a lesser rate of return, at least on the days and months that stocks go up. It is a different story when markets go down. You need to strike a compromise, a balance per se, between what you are willing to lose in opportunity (upside) versus the costs of sustaining double-digit losses (if only on paper) for days or months on end.  I suggest you do that now and if you have questions email or call me.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Markets Are at an Important Level

By Bill Schmick
iBerkshires Columnist

Stocks spent the last week consolidating. It was a necessary exercise, since stocks were overbought. Now that condition is behind us, and markets climbed higher by the end of this week. We are now at an important level. Call it a moment of truth that will indicate to investors whether the correction is over.

Up until now, the majority of traders have considered the 11 percent rally we have enjoyed in the S&P 500 Index since February nothing more than a bear market rally. But breaking above the 200 Day Moving Average (200 DMA) would make this an entirely new ballgame.

As I have written in the past, the 200 DMA is a technical level. It is simply a security's average closing price over the last 200 days. In the case of an index, like the S&P, it is the average closing price of the 500 stocks that comprise that index.  

It is probably the most important and cleanest indicator that analysts use to determine whether stocks are in a bear, versus a bull market. This indicator has kept investors on the right side of a trade for decades. For those who follow it, as long as the stock market stays below the 200 DMA, then investors should remain cautious. Once above that level, markets are considered to be back in a bull market.

The 200 DMA for the S&P 500 Index is 2019 and the Dow's 200 DMA is 17,153. As of this writing, we are already above that level on the Dow and very close to it on the S&P. We need the markets to decisively break above those levels and stay there.

The impetus for Friday's major gains in the averages came as Mario Draghi, the head of Europe's central bank, announced additional efforts to foster growth within the European economy. Draghi announced further interest rates cuts. Europe, like Japan, is now in a negative interest rate environment and is stimulating their economy with massive amounts of quantitative easing.

As in the past, whenever central banks announce additional monetary stimulus, stock markets have been conditioned to rise in a knee-jerk fashion. In this case, European markets are higher by 3 percent or more in Germany and France, while U.S. markets are up over 1 percent.

Markets have also been helped by the continuation of oils' price rise. Crude is fast approaching $40 a barrel from a low of $26 a barrel just a few short weeks ago. As I predicted, the agreement to freeze production by some of the larger oil producers, as well as production declines by a number of global energy producers has kept the energy rally going.

Next week the U.S. Fed meets, as does the Bank of Japan. Investors may see diverging actions by both entities. Japan seeks to further their monetary stimulus and, at the same time, weaken their currency. Here in America, the Fed will be considering raising rates again at some point this year. Fed Heads are debating whether Janet Yellen, the head of our central bank, will lean towards another rate hike as early as April or wait until June.

Investors should buckle their seat belts because central bank decisions have a tendency to move markets in a big way.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Markets Need a Break

By Bill Schmick
iBerkshires Columnist

The stock market has climbed 10 percent in the last three weeks from its February lows. That is a substantial gain, over a year's worth of historical performance for the S&P 500 index. And as such, it's time for a break.

That doesn't mean a sell-off will happen, but it never hurts to prepare one's mind set for a bout of profit-taking. The worst that can happen is that I'm wrong. If it doesn't occur, you can remain relieved (and possibly pleasantly surprised) that your portfolio is recovering the losses it incurred over the first two months of the year.

About the only investors that would be disgruntled by this turn of events, would be those who disregarded my advice and sold in a panic last month. For those in that category, I'm sure you are praying that markets do correct, so that you can get back in.

You may have noticed that while I expect a pullback, I'm not advising you to sell. That's because I don't see anything more than a small decline from, say, the 2,000 level to 1,940 or so on the S&P 500 Index. That's pocket change.

The reason I am hoping for a pause here is that, in the short-term, the markets are overbought and extended. They need to consolidate in order to climb higher. Tentatively, the next upside target on the S&P is between 2,050 and 2,100; if we do achieve that, than we may actually see the markets turn positive by the end of this month.  Wouldn't that be something?

Of course, the rebound in oil has much to do with the gains in the market. The two are still bound together at the hip. My expectations that the agreement between the Saudis and Russians to freeze production would at least put a floor under oil proved accurate. It has also triggered a "short-squeeze" among global traders. A short squeeze occurs when short sellers, in this case those who correctly predicted and profited from the oil price decline over the last year by selling oil short, cover their positions and in the process bid up the price of this commodity.

The recent economic data is also contributing to the more positive mood on Wall Street.

This week's non-farm payroll number saw a jump in employment to 242,000 jobs last month versus 190,000 expected. Economic statistics across the board appear to be improving, which has put a dent in the bear's recession case. For those who follow my columns, that should come as no surprise. I do not see a recession and have discounted this concern repeatedly.

But it has been politics that has mesmerized the Street this week. We had a sizable rally on Monday, in anticipation of the Super Tuesday results. I mentioned last week that a clearer picture of who would be the front runners in both parties would reduce uncertainty and rally markets. Hillary Clinton appears to be the "anointed one" among Democrats, while the Republicans are pulling out all the stops to destroy Trump's momentum.

The travesty of the latest GOP debate is not worth a comment. Thursday's televised anti-Trump speech by Mitt Romney, the ghost of elections past, was just as pitiful. This obvious GOP/Wall Street effort to sink Trump's potential presidential nomination could backfire badly.

If primary voters perceive the establishment is ganging up on their hero there could be an even greater rush into Trump's corner. It appears the Republican Party is dead-set on blowing itself up and giving the election to the Democrats. So be it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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