2/29-3/4/16 Charts of the Week

Last week equity indexes were able to stage somewhat of a rally. The Dow gained 2.98%, the S&P 500 gained 3.51% and the Russell 2000 gained 4.65% during that time. While the rally of the last 2 weeks has softened losses for equities investors (the S&P 500 is down 2% year-to-date as opposed to the 10.5% the index was down 1 month ago), the majority of US equity indexes are all down for the year, however we have not entered “bear market territory” just yet.

This rally in equities has been running strong since March of 2009. If we compare that with a couple of other S&P 500 bull market runs in modern history…

bull-runs

You can see that while the run of the 90’s certainly had more steam and a higher return than the other 2 charted rallies, it would be abnormal for this rally to continue on much longer without a significant correction. We may very well be in the process of entering that new market phase when we study the S&P 500 10 and 20-month moving averages…

recession-indicator

The chart shown above tracks the movement of the S&P 500 since 1999 along with the 10-month moving average (green line) and the 20-month moving average (red line). These trend lines are often used by analysts to determine if a security is over or undervalued based upon the price averages of the past 10 and 20 months. Bloomberg noted that since 1999, when the S&P 500 10-month moving average has fallen below or crossed above the 20-month moving average, it marks the start to a bear or bull market for the index (note that in 2012 the lines were within fractions of a percent of one another, but never crossed). While not a stark cross, the 10-month M.A. did in fact cross the 20-month M.A. on 2/24 and has been below ever since.

Weakness in the manufacturing sector has continued through last week. Even though the ISM Manufacturing Index saw a slight gain, it is still below 50, an important value for that indicator, as anything below 50 designates contraction within the sector. This indicator, along with many others that we track, exhibits why we feel that the economy might be slowing down rather than speeding up, and share prices are starting to reflect that notion.

ISM

The oil market has continued to claim victims as well. Below is a chart showing the annual performance of Blenheim Capital Management’s Flagship Global Markets Fund dating back to 1987. This is a hedge fund with significant exposure to the energy sector…

blenheim-global-markets-fund

While 2000-2011 were solid years, the fund has lost money 4/5 years due to the downturn in the energy sector, proving that not even the professional traders were able to foresee sub $30/barrel oil. According to Bloomberg, the assets under management of that fund have dropped 85% to $1.5 billion since 2011.

However, not all is lost in the commodities sector. The precious metals market continues to show signs of strength (Treece Investments discloses that partners of the firm and their clients currently maintain and have had significant positions in the precious metals sector for the last several quarters). Funds flowing in to precious metals mutual funds are at levels not seen since 2009 when the markets plummeted and investors fled for safety.

gold-fund-aum

Gold is having its best start to a year since 1980. More analysts are looking at precious metals as a safe haven investment, and have even shown a preference towards gold over currencies given the performance of metals since the European Union debt crisis in 2011…

gold-rush

While we continue to watch the precious metals sector, we are also watching other sectors including base materials and energy. When the time is right, these sectors could provide unique opportunities. If readers have any questions about our market outlook, what we do, or what we see coming, they are encouraged to call or email us to schedule a free consultation.

As our disclaimer below reminds you, this is strictly our opinion, and this information should not be considered trading recommendations. Investors should consult with a professional before making investment decisions for their own account.

Next week we will detail if equities can maintain a rally and what the unemployment picture is looking like for the US.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
« Back to the blog.