Inconclusive, But Trending Lower - Weekly Blog # 733

                                    

Mike Lipper’s Monday Morning Musings

Inconclusive, But Trending Lower

 Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

We Want Clarity

In truth, we don’t know what the future holds for us, our families, country, world, and oh yes, our investments. In terms of the US stock market, we are searching for a sign or a group of signs giving us the courage to act, hopefully before others. I am an optimist and a contrarian, based not on personality, but arithmetic. Markets spend most of their time trending on average in one direction or the other after turning points emerge. Those of us who find bull markets more pleasant and profitable than bear markets are in search of a turning-point. We have been conditioned to at least anticipate the end of a directional move before a major reversal to a new one. This makes sense because turning points occur when there is a dramatic difference between buyers and sellers in their transaction volumes When this happens an emotional low or high point is reached, although an actual low or high often happens on a different day with materially less volume. Historically, lows and highs are tested at least once, if not multiple times, without establishing new highs and lows. This week was not such a turning point in my opinion.

The Week Ended Friday the 13th of May

On the New York Stock Exchange (NYSE), 47% of the stock listed reached a new low. Similarly on NASDAQ, 49% reached a new low. Perhaps more convincingly, the volume of declining prices was about twice that of rising prices on the NYSE (16.6 million vs 7.9 million); whereas on the NASDAQ it was about three times (15.0 million vs 5.1 million). The plurality of the selling was more dramatic than the indices dominated by large caps. (Dow Jones Industrial Average (DJIA) -6.36%, S&P 500 -2.41%, and NASDAQ Composite -2.8%). Perhaps the relative performance of mutual funds reflects the extremes of fund shareholders’ fears. The best performing large sector was US Treasury Funds, with the weakest being Precious Metals Funds.

Intermediate-Term Outlook

Prices, interest rates, and yields reflect participant feelings about current levels and their impact on future results. The Producer Price Index (PPI) read +15.68%, the JOC Industrial Price Index +9.47% (already starting to fall), the Consumer Price Index (CPI) +8.24%, Inflation 4.21%, and the Broker Call Loan rate 2.75%. What could be more indicative are fund flows into Chinese domestic funds, which almost doubled this last quarter from their 2nd quarter in 2021 (816 billion RMB vs. 456 billion RMB).  

Other concerns include the S&P 500 declining for the first four months of the year, as most of the time the remaining 8 months cannot break even for the year. For some time market capitalization has provided a good clue to stock price performance, presumably because the large-caps are more liquid. However, when analyzing fund performance by market capitalization this week, there does not appear to be any appreciable difference in year-to-date performance.

Longer-Term Concerns

Secretary Yellen is pushing a minimum global corporate tax, part of the redistribution effort in the US and an effort to destroy sovereignty. Our contacts in Washington suggest these proposals will have difficulty passing the US Senate. The mere fact that it is being proposed generates a market and economic negative that worries some.

Initial Thoughts About the New Bull Market

As usual, I am premature in thinking about the future. Because it takes me a long time to research and make up my mind, I need all the time and help I can get from subscribers and others. Below are a few briefs of my thoughts, which I hope will spark a response.

• Service companies look to be better than goods companies due to the limited amount of talent available. This will lead to favorable pricing.
• Invest in countries and people that are honest, save, and are believers in a practical education.
• Invest in technology that uses new ways to solve problems.

Please share your thoughts now, even though we probably have considerable time before the new bull market comes. The new bull market will probably be led by other names than the old.

 

Did you miss my blog last week? Click here to read.

https://mikelipper.blogspot.com/2022/05/havent-found-bottom-yet-investments.html

https://mikelipper.blogspot.com/2022/05/three-worries-april-near-term-slowdown.html

https://mikelipper.blogspot.com/2022/04/short-long-term-thoughts-weekly-blog-729.html

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