Market Outlook Analysis
The economy and markets are in good shape - for now.
There is a lot to learn by studying price action and volume, otherwise known as technical analysis. The market reflects the consensus view of participants. As economic data is reported, the market adjusts. In this Outlook, I review the technicals/price analysis of this market, economic cycle.
Last year was normal for a market in the last stages of a market cycle. Below is a chart that emphasizes last year’s market:
The markets had about a 10% correction that started last month. We normally have a 10% correction about once a year, and two to three 5% pullbacks each year.
There is plenty of stimulus ($1.5 trillion tax cuts and $300 billion budget deal over two years) that should keep the economy growing.
The markets did well in 2017, and much better than most investors and analysts expected, including myself. My November Market Outlook tried to explain the unusual year. Click here to review the report.
2017 is a surprisingly strong year for equity markets around the world, but unfortunately U.S. markets continue to be overvalued, expensive.
In this outlook, I will focus on technical/price analysis. Technical analysis is focused on the trend of prices, and is not concerned with what a company does, or its valuation.
I will now be able to get back to issuing my quarterly economic updates and monthly market outlooks. Here is my August Market Outlook.
I normally write a monthly market outlook, but the last few months I’ve been analyzing and reporting about Trumponomics. This month I provide an outlook for the markets.
For many reasons, I did not think the market would be doing as well as it has. Last year I wrote that the U.S. economy was fine, it was the rest of the world that is the concern.
This market is acting peculiar this late in an economic and market cycle; some of it has to do with the new President. Many of us did not anticipate the results of the election. Also, when there is this much change and uncertainty the markets normally become more volatile.
It’s always important to understand the major bullish and bearish cases for the markets.
For 2016, earnings forecasts had been falling, but bottomed in the middle of August. The earnings forecast trends have stabilized and are slightly up.
Even though the U.S. economy is doing better than most of our major trading partners, the growth in U.S. corporate earnings and the economy are a concern.
The market is doing much better than I expected, despite sluggish economic and earnings growth.
I’ve been recommending that investors need to be cautious for the following reasons.
Below is an important chart that I’ve introduced in a previous article as it evinces the cyclicality of our markets:
I’ve read several articles and have seen several “experts” on cable financial news comparing this market to the market of 2011. There are some similarities, but I doubt that this market will follow the same script as 2011.
May Market Outlook
This month I will focus on this economic cycle, U.S. interest rates here, and the global trend of negative interest rates.