Yesterday morning I wrote the pendulum of fear-real fear not the media hyped “fear” used in ever article associated with the White House and its policies- among investors that is swinging from not getting caught in a dip to getting caught flat footed. 

FOMO

Investors of all stripes, but especially professional managers, are going to have to explain why they missed out again.  Typically, such anxiety increases dramatically with milestones, no milestone would be bigger than the Dow Jones Industrial Average making new all-time highs. 

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S&P 500 Index	+0.13%
Communication Services (XLC)	+0.27%
Consumer Discretionary (XLY)	+0.04%
Consumer Staples (XLP)	-0.18%
Energy (XLE)	+0.33%
Financials (XLF)	+1.70%
Health Care (XLV)	-0.14%
Industrials (XLI)	-0.09%
Materials (XLB)	+1.07%
Real Estate (XLRE)	-0.95%
Technology (XLK)	-0.26%
Utilities (XLU)	-2.17%

Dow Deepest Dives
Date	Point Decline
February 5, 2018	-1,175
February 8, 2018	-1,032
March 22, 2018	-724
February 2, 2018	-666

Rallying Without Big Tech

Halfway through the year, an article in MarketWatch summed up how remarkable the influence of technology was for the rally – it was the entire rally.

Tech sector contributed all of the stock market gains so far in 2018 Published: July 2, 2018 5:09 p.m. ET https://www.marketwatch.com/story/tech-sector-contributed-all-of-the-stock-market-gains-so-far-in-2018-2018-07-02

The S&P Technology Sector (XLK) at that point was 102% of the entire rally and Amazon which is part of the S&P Consumer Discretionary Sector was 35% of the rally. 

Many Wall Street firms got bearish this summer with the premise that sooner or later tech would stumble, and once it did money would flee stocks entirely. 

Yesterday, technology stocks took it on the chin, but money rotated into other areas of the market including financials.  In the last three months, five sectors have outperformed technology and the board market has held up nicely.

• Health Care +10.7%
• Utilities +9.4
• Consumer Staples +7.8%
• Real Estate +6.7%
• Consumer Discretionary +4.5%
• Technology +3.7%

It wasn’t all bad news for technology as the XLK held above its 50-day moving average and money rotated back into chip stocks.

Tariffs

I’m not dismissing tariffs or their potential impact on the economy or stock market, but all the naysayers thought the market would crash and burn when these battles began.  There has been some increased volatility, but the market has been in rally mode.

Moreover, these potential headwinds could be tailwinds as we get a deal with Canada, finish up South Korea and the EU and then face down China.

Right now these are the numbers to understand;

• US Economy $20.4 trillion
• China Economy $14.0 trillion
• US Corporate Profits 2Q18 $2.0 trillion
• China Tariff taxes $32.5 billion

The market has not traded sideways since the tariff war erupted with China, it’s been up and up BIG TIME (see Dow Deepest Dives), but we want to see resolution.

I’m studying a lot of issues on how this might be resolved, including a potential Plaza Accord, which ended in a similar trade dispute with Japan. 

Up in Smoke

By the way, everyone was talking about Tilray, which at one point hit $300 a share or 400% for the day.  I interviewed the company’s CEO on the show and I know a lot of folks that bought the stock, I hope you took profits.  The action in this stock and others underscores this will be a real area and generate billions of dollars in wealth for investors, but we are in the hype phase and went into the parabolic phase today.

Today’s Session

Don’t look now, but the market is edging higher as initial jobless claims have dipped to lowest level since November 15, 1969.  The sharpest declines are from Illinois, Iowa and Kansas.

Comments

I had to look it up. Please sing again: Ain't That A Kick in the Head Happiness and laughter may even bring out the conservative vote in November!!!! Thanks Charles andrew on 9/20/2018 11:05:07 AM

Nice breakdown of several of the moving parts. They are now no longer swirling around in my head but have been anchored in fact. Thank You, Sir. I remember when you stated something like, 90% of the upside happens on 10% of the trading days. The folks and Dow Theory say something similar. Sometimes it's the little tidbits that make us better investors. Fred on 9/20/2018 11:37:35 AM

Is the jobless claims the absolute number of applications or a percent of the workforce? The US population has about doubled since 1969. Big difference. Neal on 9/20/2018 3:43:34 PM

Hey Charles.....I've been taking profits these past few days as you have noted to your subscribers. But more importantly, what's your gut feeling for October should the Dems retake the House? I haven't seen anyone venturing an opinion. Either they don't have a clue or are scared to death. Please keep up the great work.....thanks! DB DAVID L. BRUNDAGE on 9/20/2018 5:34:01 PM

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