If you were to look at the trading range of the S&P 500 from late December until the close of business this past Friday, you would notice that it’s been between 3,800 to just this side of 4,200. The collapse of Silicon Valley Bank on March 10th caused a pullback in the index, but it has managed (struggled) to climb to the upside this past week.
The banking chaos of March has somewhat eased but has not gone away although the media have tried to help the cause by underreporting this concern. On Tuesday the S&P 500 hit a two-month high to close near 4,170 but then went south Wednesday and Thursday. The major indexes closed the week with small losses. The S&P 500 closed at 4,133 on Friday down 0.1% for the week, the Dow Jones closed at 33,808, down 0.2% for the week and the NASDAQ at 12072 down 0.4% for the week.
There is a small (but growing) feeling on Wall Street that the market bounce we’ve experienced since mid-March may be running out of steam. As a subscriber to GaneWisdom/Market Edge, you know where our market positions are currently and know the returns you’ve accumulated. We use our strategies based on indicators and not emotions, however the present circumstances bear watching. Vigilance is mandatory at this time.
The Cboe Volatility Index (VIX) measures investor’s concern (or lack) regarding the market’s direction. We’ve spoken at length about the VIX but it is a bit amazing to see these folks show a decided view of a lack of concern. This week the VIX fell to 16.77 which indicates this. It was just a few weeks back that this average (which is not known for wild swings) hit 30! This is a further sign, to us, that the market is getting ‘tired”.
Over and over these past months we have noted that in order for the Bear Market to come to end we would need to see either a Panic Bottom -where investors run out the fire escape, and where the S&P 500 falls to @3,300 or at the other end the S&P 500 clock in and stay at 4,300. We still are of the opinion that a Panic Bottom is the more likely of the two BUT if we do reach the magic number of 4,300, we will be there to point the best direction to position your money.
Added to the Street’s woes is the Debt Ceiling. The debate in Congress goes on with one side pushing for a quick increase from the current $31.4 trillion debt ceiling and the other side maneuvering for a cut in government spending in exchange for a higher limit on government borrowing. Sadly, those on Social Security could see a zero deposit on their June check if the two sides cannot come to a compromise. Soon.
We recall that in 2005 the market was beginning to show signs of a pullback. A significant one. Although the markets were chugging along at that time (the DJIA stood at 15,900 that summer), we began to see the reason for the sustained strength (seemingly anyway) – the strength in the housing market. There is something very like that happening today – except that the housing market is showing uneasiness if not weakening.
Housing starts in March were down 0.8% off from February’s number of 7.3%. Building permits were off 8.8%. Mortgage applications declined this week by 8.8% which is a bit unnerving considering they were up 5.3% the previous week. The national average for 30-year fixed mortgages increased a bit to 6.43% and the applications to purchase a new home were down 10% while re-fi’s were down 5.8%.
There are more and more economists and stock traders climbing aboard the recession bandwagon. There is now a record number of Americans who are very concerned about the present state of the economy. They also hold a fearful outlook for the future economy as well, believing that a recession is now imminent. According to CNBC 69% share this negative view. As more and more consumers rely on borrowed money just to pay bills it is becoming obvious that a so-called self-fulfilling prophecy could also arise where things become so bad that it may take some time to recover. If people are scared about the future, they stop spending money and when people stop spending money the ripple effect causes recessions. We are also noticing that many people are totally confused by the more-than-usual flopping around of the equity markets as well as the banking sector’s recent upheavals. The results of these concerns will be seen over the coming weeks and months.
Inflation concerns have not gone away. They have just been moved to the sideline a bit due to the not so pleasant Geo-political situation. There is growing concern about possible missteps in the South China Sea by any number of countries. Although we rarely mention world events so as to not cause undue concern, monitoring Geo-political events is something we pay very close attention to, and it is important in our opinion that you also now begin to pay heed to what is transpiring globally. These events not only can - but will - have an enormous impact on the equity markets here in the US but abroad as well.
Over the next few weeks, we may well see the stock market move in a sideway manner. Moving up, moving down but generally remaining in a fairly thin trading range. We will continue to monitor those indicators that directly affect your money, and which allow us to offer you guidance and peace of mind.
Our position is to remain in the following:
S&P 500 Index Funds
International Growth Fund
Cash (Money Markets)
Please watch for our Mid-week Market Alerts should there be any.
* As is the case with any investment, use your discretion and judgement before purchasing and/or transferring. Diversification is always prudent; therefore, our suggestion is using a portion of your portfolio and not the total in any one fund or subaccount. A portion should remain in Cash (Money Markets)