December 30, 2011



August 4, 2017

 

Dear Investors,

For the second consecutive week, the broader markets marked time as the Dow Jones Industrial Average climbed to its projected target of 22,000. The S&P 500 Index reached its projected target of 2,475 two weeks ago and has since been trading in a very narrow range. Meanwhile, the DJIA has jumped up over 2.5% in the last ten trading days. Of course, the meteoric rise of 30 stocks in the Dow captures most of the headlines and drives the average investors’ sentiment. However, it is important to understand that the 30 stocks in the Dow are not weighted evenly, so the movement of a few can distort the index. The NASDAQ Composite and Russell 2000 have declined over the last two weeks. The Wilshire 5000 Total Market Index has been virtually unchanged for three weeks.

The Dow Jones Industrial Average jumped another 262.50 points, or 1.2%, this week to close at 22,092.51, and is up 11.8% for this year. The S&P 500 Index was virtually unchanged for the third consecutive week adding only 4.73 points, or 0.2%, to close at 2,476.83, and is up 10.6% this year. The NASDAQ Composite slipped 23.12 points, or -0.4%, this week to close at 6,351.56, and is up 18.0% this year. The Russell 2000 was the largest percentage loser for the second straight week falling 16.94 points, or -1.2%, to close at 1,412.32, and is up 4.1% year to date. Gold slipped $4.70 to close at $1,264.30, and is up 19.2% this year.

If you take an honest look at the economic data that is based on surveys and/or sentiment, then you will notice that most have been optimistic. However, when you match the survey or sentiment data with that of actual data, it has been consistently lower than expected. For example, the consumer confidence data is very high but is not translating into actual retail sales or durable goods, which have been below expectations. The monthly Jobs Report is a survey and this month it stated that 209,000 jobs were added to the economy. 158,000 of these jobs were a pure guesstimate of new businesses that may have been created. The unemployment rate in July was 4.3%. The survey numbers have been hovering around 200,000 jobs per month, which, if this were true, would be great for the economy. However, GDP data just does not support this premise. The markets were celebrating the first read of the second quarter GDP of 2.6%. However, if you put that in perspective, the second quarter GDP growth of 2015 was 2.7% and the second quarter of 2016 was 2.2%. The third quarter of 2016 measure was 2.8% and was prior to the election. Therefore, you can see that since the election, the economy has not grown by 15%-20%, like the stock market grew. This is irrational exuberance, Act II.

There is no question that corporate earnings have improved. However, the markets are trading at a price to earnings ratio that has only been seen prior to historic crashes. If President Trump can actually get the corporate tax rate cut to 15%, then that would result in higher corporate earnings. Many financial analysts believe that the markets are currently priced too high for the best case of corporate tax reform. There is a Wall Street saying, “buy the rumors, sell the news.” The current situation could be a classic illustration of this axiom. It seems unlikely that the corporate tax rates will be cut to 15%, and even if that should occur, then the price to earnings ratio would still be higher than historic norms.

From a technical aspect, the Dow is extremely over-bought on a daily and weekly basis. There was an eighth Hindenburg Omen observation this week which illustrates the internal divergences of the markets. There is an extraordinarily large divergence between stocks and their 10-day advance decline data. It just does not make sense to be a buyer at these lofty levels, but greed seems to take over as investors feel like they are missing out. The stock market is extremely over-bought for the short and long term. Gold is over-bought in the short-term, which means that we could see a corrective decline after this three week rally. However, gold still has a lower downside risk than stocks do.

Don’t let greed be your investment objective; you should be fearful at these levels. If you or someone you know would like a financial check-up or review, then I encourage you to come in and see how our B.E.L.I.E.V.E. Wealth Management process can clarify your retirement goals. Our no-obligation consultation could be the first step toward your retirement goal. Is it time for your assets to start working for you instead of you working for your assets? Please call our office or email info@.

My next market letter will be August 20th barring a significant market event.

Vincent Pallitto, CPA, CFP®   

Summit Asset Management, Inc.



973-301-2360

973-301-2370 Fax

A branch office of, and securities offered through LPL Financial

Member FINRA SIPC

 

You cannot invest directly in a market index, market indices are for benchmark purposes.  The information in this market commentary is obtained from various news sources, and . 

Fibonacci Phi Date (also known as Fibonacci Time Extensions) is a technical indicator used to seek to identify the timing of significant price movement in the market, and is based on the Fibonacci Number Sequence.

The Hindenburg Omen is a combination of technical factors that attempt to measure the health of the NYSE, and by extension, the stock market as a whole.  The goal of the indicator is to signal increased probability of a stock market crash.

The McClellan Oscillator is a market breadth indicator used in technical analysis by financial analysts of the New York Stock Exchange to evaluate the balance between the advancing and declining stocks.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you consult your financial advisor prior to investing.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Blue Chip Index is a stock index that tracks the shares of the top-performing publicly traded companies.  These indices are unmanaged, which cannot be invested into directly.

Precious metal investing involves greater fluctuation and potential for losses.

Past performance is no guarantee of future result.

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