Stocks on August 1, 2018: outlook


*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades. Go to the homepage for my latest market outlook.
The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

  1. Stock buybacks are roaring, which is bullish for stocks in 2018. 2019 probably won’t be as good.
  2. Personal Consumption growth is still accelerating. Medium-long term bullish for the stock market.
  3. Chicago PMI is trending upwards. Medium-long term bullish for the stock market.

Read: Study: think FANG and stocks are dead? Think again
Read: Study: Russell is up 5 months in a row. Very bullish for stocks
1 am: Stock buybacks are roaring, which is bullish for stocks in 2018. 2019 probably won’t be as good.
Throughout 2018 I’ve said repeatedly that corporate buybacks will put a floor under the stock market this year. And so far, I’ve been right. Stock buybacks are soaring and ACCELERATING.
Corporate buybacks totalled $240 billion in Q1 and $430 billion in Q2. In other words, quarterly buybacks nearly doubled from Q1 to Q2 2018!

It’s hard to be bearish in the face of this avalanche of stock buybacks. Corporate buybacks will probably surge throughout the rest of 2018, but then slow down in 2019 as the effects of Trump’s tax cuts wear off. Hence, this is a bullish factor for the stock market in 2018 but not in 2019.
1 am: Personal Consumption growth is still accelerating. Medium-long term bullish for the stock market.
The latest reading for Personal Consumption Expenditures demonstrates that PCE growth is accelerating (trending upwards). Historically, Personal Consumption Expenditures growth starts to fall before a bear market and recession begins.
*Personal Consumption is important because it accounts for 70% of U.S. GDP

This implies that a major decline in the stock market is not imminent. This is a medium-long term bullish sign for stocks.
1 am: Chicago PMI is trending upwards. Medium-long term bullish for the stock market.
The latest reading for Chicago PMI went up from 64.1 to 65.5. But more importantly, the Chicago PMI is still trending upwards. The Chicago PMI trended downwards before previous major stock market peaks in 2007 and 2000.
Chicago PMI right now:

Chicago PMI before 2007:

Chicago PMI before 2000:

Read Stocks on July 31, 2018: outlook

Outlook

Here’s what I think will happen based on my discretionary outlook.

  1. 2018 will trend higher but will also be a choppy year.
  2. The S&P 500 has approximately 1 year left in this bull market.

I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a big correction at this point in time. I ignore small corrections. I only sidestep big corrections and bear markets.
I have been long the S&P 500 since September 7, 2017 when it was at 2465.
*I also have a small Day Trading portfolio. Click here to view my day trades.

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