Friday, May 13, 2016

Weekly Update: Not Feeling All Recessiony...

The market shivered last week as those who've been predicting recession levered Macy's, Nordstrom and JC Penney's earnings misses as proof positive that the consumer is missing in action and that the U.S. economy is being kept alive by the machinations of Janet Yellen and her band of desperate FOMC board members.

But, you know, bars and restaurants are doing really well. So are companies that sell building materials and automobiles. Hmm... I wonder what they have in common?? Oh yeah, folks don't go to Amazon to buy the stuff they offer. In fact, the companies whose stuff Amazon does offer---specifically, clothing, electronics and appliances, furniture, general merchandise, health and personal care and sporting goods---are losing 24.3% of their sales to the online behemoth! Yep, if you belong to one of those eight categories, that's a serious hit to your bottom line.

While folks are indeed buying more from Amazon (Q1 revenue up 28.22%) and less from Macy's, JC Penney and Norstrom (-7.4%, -1.61% and +1.06% respectively), they're really enjoying those savings at the gas pump --- Priceline and Expedia (online travel agencies) saw their revenues rise 16.7% and 38.63% respectively, and Netflix enjoyed a whopping 24.45% increase.

I'm just not feeling all recessiony right about now...

So what's giving the market the blues? Well, while, again, I'm not feeling all recessiony, I can't say I'm feeling all warm and fuzzy either. In fact, as I've been illustrating in my weekly videos, I'm fairly gloomy over the very near-term. And that would be about seasonality; here's a heat map showing the average per month performance of the MSCI World Index over the past 5 and 10 years:     click each chart then wait a second and click again to enlarge...

5 and 10-year seasonality

Yep, sell in May and go away, as they say! Well, not so fast! If you do and the average doesn't occur, you could end up doing some real long-term harm to your bottom line. Here are the monthly highs over the past 5 years:

5-year high seasonality

And here's a look at the best monthly results over the past 10 years:

10-year high seasonality

Nah, better to stay the course --- if you have more than a two-month time horizon that is.

It would also be about the technical setup. Here's a cleaned up look at some of what I've been showing you on the videos:


Panel 2 shows us the Moving Average Convergence Divergence Oscillator (MACD). While, in different ways, this momentum indicator offers up signals to short and longer-term traders, I find it most predictive when its path diverges from the general price trend, as it began to in late March. The S&P 500 closing below its 50 day moving average (green line in panel 1) on Friday doesn't help either.

And of course there's the prospects for a Fed rate hike(s) this year, which has the market a bit anxious. And you can see why based on how stocks responded to the Fed's stab at it last December:

December rate hike

Then there's "Brexit" (the June 23rd Great Britain referendum on whether or not remain in the European Union). Here's the latest poll result:

Brexit poll

While---despite what you see above---I seriously don't see Brexit happening, the market could experience some serious volatility leading up to it. Particularly if there's no clear sign of nogo going in.

Beyond all that short-term stuff (there's of course more we could delve into, positive and negative), I feel very good about owning the world's great companies (in balanced, diversified fashion) on behalf of our patient, eating, drinking, traveling, home-improving, car-driving, Netflix-watching, online-buying, long-term-thinking clients.

Have a wonderful weekend!


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