Markets generally continued higher this week, and continue to cogitate on the recent FED comments.  Nasdaq and S&P Indices* look pretty healthy. With the current FED statements, the FED ended a three-year drive to give us a tighter monetary policy as they projected no rate hikes for 2019 and possibly one in 2020.  The FED also reduced inflation forecasts for the next three years and suggested that it would halt the decline of the balance sheet in September.

Another related issue – the charts of the US Dollar strength may be taking a step back. Note in the following chart that we’ve seen steady growth in the USD strength over the past year – up until recently. You can see that the dollar has tested overhead resistance (shown by the solid red line) and fallen back several times; the most recent test being the beginning of March.  Note also the solid blue line showing the support level. This picture is known as a rising wedge – and it often resolves in the longer-term direction.

Over the past two years we’ve seen a stronger dollar and along with it a stronger US market.  Now, a pattern is a suggestion, never a guarantee, and that lets us speculate on the possible future actions. A continued upward movement of the dollar would suggest that US stocks will continue to be the sweet spot for investors, whereas a solid break below the blue line would suggest that the US dollar may be reversing and losing strength.

What other areas of the investment world does this chart cause us to examine more closely?  Customarily when we see a weaker dollar, NON-US equities tend to out-perform US equities.  Gold, Utilities and Energy also typically fare well in a falling dollar environment.  Of late we’ve seen quite a bit of strength in these areas.  Utilities also are showing a very strong chart lately.

We don’t know the future, of course, but the recent strength in non-US assets, Utilities, Gold and Energy, along with the weakness in the US Dollar give us reasons to continue to regularly give these areas a second look.  Perhaps that will tell us where Mr. Market is headed next.  We will see.

Market Minute 3/22/2019 – Curve Bawl?

Spring has finally arrived and all the birds are singing — apparently, they have yet to notice that on this lovely Friday morning it’s the bears who are in charge. Bears seem to thrive on negativity. Indeed, when there is an equal amount of both good and bad news, more likely than not, the markets will follow the bears. Is it warranted? Let’s take a quick scan across the horizon and see if there is much ado about something.

Firstly, there is the issue of slowing global growth. Any indicators that suggest that the period of happy expansion may be ending soon will put a damper on the markets. There is some evidence of that being the case. The most critical example is found with new data today from the EU, specifically Germany.      

Alec Young, managing director of global markets research at FTSE Russell had this to say: “Germany’s latest PMI reading of 44.7 was well below consensus forecast of 48 and the weakest since 2012″… “Given Germany status as Europe’s biggest economy, the bleak news is aggravating existing worries over global growth. It’s no surprise equity futures and bond yields are lower, reflecting worries over slower economic and earnings growth prospects.” Be reminded that when analyzing data based on surveys, it’s a very good idea to not get too excited about any single report. Some statisticians caution that you should not believe in such numbers until you see them twice.

Also noteworthy is the US report of manufacturing activity. A sub-reading of manufacturing output fell to 52.5, well below the 53.6-point forecast and the lowest level since June 2017. That’s not good but it’s not terrible. Manufacturing output can be affected by a lot of different things, the most important would be customer / consumer demand – however, there seems not to be a problem with demand. What we did see though was some awful weather — mostly in the plains, mid-west and eastern states. If the movement of goods through the pipeline slowed due to weather issues there is an excellent chance that consumer purchasing has been simply delayed. We’ll see. In any case do note that while this manufacturing data point is lower than forecast it is still a positive number. It would be truly bad news if the number had fallen below 50. That is the dividing line between growth and contraction. 

Finally, we have renewed concerns about the yield curve. This is the bogeyman that was the primary catalyst in the December sell-off. It is not a good thing when short term bonds, bills or notes pay higher rates of return than their 5- and 10-year versions. As of this writing, parts of the curve are inverted but there is not a strong case to be made for the entire curve to invert. For the moment the birds should continue to sing, and you should enjoy the sounds.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

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