by Brooke Thackray, Alphamountain Investments
As of August 6th, 2018, 83% of the S&P500 companies have reported their earnings so far this quarter (Thomson Reuters, August 6th, 2018). The results have been strong with 24% growth on a year-over-year basis and 79% of the companies beating their expectations. US earnings season is largely finished and now investor attention is turning more towards the economy, which feels like it is doing well with a low unemployment rate of 3.9% and GDP growth of 4.1% on a year-over-year basis.
The feeling is deceiving as worldwide growth has started to wane. Stock markets around the world are generally not performing as well as the US stock market, including emerging markets, Europe, China and Japan. The world has been narrowing with fewer stock markets performing well.
Below are the graphs of some major stock markets, including relative performance compared to the S&P500. All of the graphs use hedged ETFs to remove the currency effect of the US dollar outperforming most world currencies in 2018.
In the US, stock market breadth has been declining. Only a handful of technology stocks accounted for all of the gains of the S&P 500 in the first half of 2018.
There is no question that the US stock market has had some large boosters, such as tax reform and buy-backs from corporations pushing their stock prices higher. Can the US trend of outperformance continue? Of course, but it is going to get harder over time.
If foreign economies are slowing, the US economy at some point will be affected by a decrease in demand. The current trade wars are not helping the situation. Stock markets in the emerging markets, including China have already been negatively impacted. The trade war impact has not been felt in the US stock market, as many investors believe that the impact will be minimal and the situation is under control with a solution just around the corner.
The US economy and stock market are not an island. Eventually, either the rest of the world will once again increase their growth rates with corresponding stock market improvements, or the US economy and stock market will weaken. Given that the world economy is showing signs of slowing, the odds are probably that the US stock market will pull back in the not so distant future.
What the HAC is going on?
Towards the end of June, HAC increased its equity positions substantially in order to take advantage of the seasonal trend of the stock market performing well in the first eighteen calendar days of July heading into earnings season. As the 18 Calendar Day Earnings Month Effect trade finished, HAC reduced its equity positions and increased its bond positions. The increased allocation to equities for most of July proved to be profitable for HAC.
Seasonal Opportunities Goldā Down but not out !
The seasonal period for gold bullion started on July 12th. Before its seasonal period gold bullion was not performing well and also in the first part of its seasonal period.
In the first part of the year gold bullion was trading at approximately $1350 an oz. Recently it has been trading just above $1200. The $1200 level is a support level for gold bullion and if it were to break below this level, gold could potentially suffer further pain sliding to approximately $1150.
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Thackray Newsletter 2018 08 August by dpbasic on Scribd
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