Where We Stand

This market is a technical problem, not a fundamental problem for the US we believe. There are signs of strength in the US economy that are not in the other economies of the world. US policy makers have been pushing hard to keep it that way. The reason we believe the decline has been so sharp is that we have not had a 10% correction since 2011. There has been one 10% and two 5% corrections each year on average. So we were in a very unusual period, leading to this sharp correction. We are hearing very negative howls about the market and the economy from some corners, but only time will tell if the economy slows down. Right now the US economy is growing slowly but gaining some positive speed. The economy outside the US is weak and China is a problem.

While market indexes have been rising until recently, when it topped out in May near 18,300 on the DJA, the monthly momentum has been negative for some time. This has been occurring for 18 months, which is similar to the 2007-2009 period when monthly momentum lasted 22 months in a negative position. Perhaps as we reach record levels of monthly momentum on the negative side , we will see the negative momentum exhaust itself and then return to a positive momentum once we come out of this recent market swoon. The other indicators are oversold short term and that might signal a recovery soon. This has been a “stock pickers” market, where the disparity between major S&P groups has been wide. One example of that is that health care stocks are up 10% YTD even in this tough market and the energy sector is down sharply this year by over 20%.

Monday was a brutal day after a very tough week ending August 21, down 5.71%. A market that opens down 1,000 points on the DJIA can get people’s attention. We’ve now had several consecutive days where the market has been down 3% and those patterns are usually followed by some recovery. We are watching closely, and of course we are always happy to discuss the market with our friends and investors as folks would like.

Brian Kasal CEO, FSWA