A Market Timing Report based on the 6-05-2015 Close, published Sunday June 7th, 2015
I deliver focused comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
The SP500 Index dropped just a bit on Friday after the employment number hit 280,000 vs. the 220-225K expected. Recovery should be good for the markets. Earnings go up and stock prices rise in step with them. That’s a healthy recovery. If the market does not go up over the next few weeks, something is wrong with this recovery.
The Federal Reserve induced excesses may be to blame. Raising interest rates this cycle may cause greater volatility than we’ve experienced before as market participants including stockholders and companies themselves have become addicted to cheap loans. Just consider the billions of buybacks that companies have undertaken with cheaply borrowed dollars. These purchases have raised stock prices in an unnatural way.
Normally innovation leads to strong earnings which in turn lead to the rising stock price of a great company. At least that is the best sort of company to lead in a market. Cheap money twists the game and distorts the system from the ideal. The consequence will be that some companies that have been using funny money instead of innovation to advance their stock such as IBM will be major victims of Federal Reserve tightening. Here is the key to successful investing over the next few years (it will always keep you ahead, but it’s now more important than ever as Fed interest rates rise off zero): Stay with the true innovators.
Russell 2000 U.S. Small Cap Index (RUT, IWM): Small caps are holding up well despite being vastly overvalued. Got a boost from US dollar strength after the employment numbers.
Gold ETF (GLD): Gold is slipping on the big boost in interest rates this week. Hold as insurance only.
U.S. 10 Year Treasury Note (TNX,TYX,TLT,TBF): Employment was strong over the past month, so rates shot up. They are right at resistance and unless the economy is going straight up from here, rates should decline. For bond holders, NOW would be nice, or the selling will accelerate further. (see my messages on Twitter®Follow Me on Twitter®. Follow Me on StockTwits®).
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