It seems obvious to me that fundamental data doesn’t seem to have a direct link to market performance these days, and the actual market driver appears to be the hope (or even expectation?) for economic recovery.

This is certainly no ordinary recovery, but then this is definitely not an ordinary recession. I am quite certain that this is the first recession that we have ever had…on purpose. Indeed, we have never seen the economy brake on a dime and then intentionally and deliberately be brought to a stop.

And then, with the entire country told to stay at home to be healthy, the economy ‘restarted’ like a light switch. The US markets – which had dropped from an all-time peak to a 30+% decline in a heartbeat of time – had never seen as quick a rebound as has just happened, and truly never seen this tsunami of economic support from governments around the entire world. Keynesians worldwide are gleefully exclaiming “See! Macroeconomics is all powerful!” (Others might jump to their feet and add, “Yes, but…” however, we will leave that discussion for another time.)

So, where do we go from here? Many investors (including some very big names) have been taken by surprise at the scope of the market’s huge-a-mungous rebound: The firecracker rally didn’t seem to be in synch with the ‘real world’. But, here’s the thing: Markets DO seem to be able to discover oncoming changes before they are obvious to the rest of the world — in particular they seem to be discovering some surprisingly good stuff that is happening.

I’ve found, as always, a LOT of charts. Some not particularly interesting, but some – pretty surprising. I’d like to share a couple that help showcase the current happenings in the recovery.

Here’s the latest Empire State General Business Conditions Index (June’s), which popped a record 48.3 points to a reading of -0.2. This has two surprises. First, the consensus expectations were for a print of -35.0 (Huh? Could they have been that far off?) Second, at a print of -0.2 the index is only a hair away from EXPANSION territory. My comment is ‘WOW!!’
Source: Ned Davis Research (used with permission)

Perhaps even more impressive was the incredible surge of optimism, as the Empire Manufacturing Expectations Index flew 27.4 points to a print of 56.5, which is the highest level since October of 2009. This indicates that manufacturers expect activity to regain ground and recover quickly over the next six months. I repeat myself ‘WOW!!’.

Source: Ned Davis Research (used with permission)

OK, so there were, of course some data showing that parts of the economy are not in great shape, but these are just a couple of data showing some really nice positive surprises.

With many stocks on the verge of breaking even for this year we will need to see a lot of continuing positive surprises to keep the bulls running.

Ron’s Market Minute — The Rock and the Hard Place are Back

The major market indexes are in medium-term uptrends that began in late March and are still continuing as uptrends. However, in some cases the shorter term is questionable as the trends get closer to the 200-day (longer term) trendlines. I’m referring mainly to the S&P indexes and Small-cap indexes. The Nasdaq punctured it’s 200 day average a long time back and has continued upward.

Large company tech and healthcare stocks continue to hold up the market, but some of the other sectors are looking a bit bearish. 

To top that off, it is very common for portfolio managers to rebalance their holdings at the end of calendar quarters. Today that means selling a lot of stocks that have gains in order to purchase bond holdings that have (actual or relative) losses. Supply and demand- means less demand for stocks over the very near term, and more demand for bonds- which generally means that we expect stocks to pull back and bonds to climb. But then it’s the end of the month which is typically strong for stocks, and then it’s about to be a long holiday break with many traders heading (wherever they can go these days) somewhere- and they typically sell stocks before a long holiday. 

Guess it should be an interesting week or so as we are yet again between the proverbial rock and the hard place. 

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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