Mike Lipper’s Monday Morning Musings
This week’s Dichotomy/Bifocals Needed
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
1 week = 1 month, or 1 or more years
From this investor’s viewpoint, the previous five trading
days could be seen as a great dichotomy. Seventy seven percent of NYSE stock
prices declined and 66% of NASDAQ stocks. Additionally, the US dollar rose in
price to 100.362 on Friday from 97.70 on Thursday!!
The stock price decline was supported by a sharply increased
bearish reading in the American Association of Individual Investors (AAII) sample
survey looking 6-months ahead, which rose to 46.4% from 35.5% the prior week. There
was only a slight fall in the bullish six-month prediction which fell to 31.9%
from 33.1% the prior week. Large publicly traded companies continued to report
little to no hiring to offset those retiring.
One might have thought that worries about inflation would have
had more impact, with the ECRI industrial price indicator rising to 130.99% from
126% the prior week. The index was up 9.59% for the last 12 months, but that didn’t
seem to retard the jump in the dollar on Friday.
If one listened to the advocates of The President, the move in
Friday’s dollar pointed to good times ahead. Other factors they mentioned were
part of the reason the majority sold stocks this week, including on the last
day of the week. We therefore have a dichotomy, which is a condition that can’t
last or perhaps requires a different analysis?
The correct analysis is a condition that possibly occurs to
seniors. That is the need to get corrective eyewear (glasses or implants). Perhaps
we need to use one set of lenses for short distances and one for long or perhaps
use bifocals.
We could be drawing close to the time when we will know
whether the short-term optimistic view or the longer-term more pessimistic view
followed by optimism is correct.
Watch the S&P 500
There are four major US stock market indices quoted in the
press. The Dow Jones Industrial Average (DJIA) consists of just 30 stocks weighted
by their stock prices, whereast he Standard & Poor’s 500 is weighted by market
capitalization. The NASDAQ Composite is also capitalization weighted of about 500
stocks, although some stocks don’t have public records for five and ten years. The
Russell 2000 Index is small-cap focused and suffers from a significant number
of companies reporting losses. For analytical and investment purposes, most
large financial institutions use the S&P 500 Index.
The S&P 500 Index closed at 6,632 on Friday, the lowest price
in over four months. Market analysts believe a further decline of more than 3%
will make a near-term market rise above its former high of 7,002 difficult for
an extended period. The reason for this is, many of the investors who bought
stocks before the decline will try to breakeven on the way up, making progress
slow.
Question: What do you think?
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Premature: Buying Program to Begin Soon? - Weekly Blog # 931
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Lipper's Blog: Expectations Changing? - Weekly Blog # 930
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Lipper's Blog: Diversification - Weekly Blog # 929
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