Stocks on July 30, 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. Households’ net worth continues to make new highs. A medium-long term bullish sign for the stock market and economy.
  2. CEO’s are optimistic. A bullish leading indicator for the economy and stock market.
  3. U.S. federal government debt is a lot lower than people think. Not a bearish factor for the stock market right now.
  4. COT sentiment data is bullish for Australian dollar, bullish on New Zealand dollar, and bullish on Swiss Franc.

Read Studies: the stock market is near is near all-time highs. What’s next for stocks
1 am: Households’ net worth continues to make new highs. A medium-long term bullish sign for the stock market and economy.
The Federal Reserve releases quarterly data on Households and Nonprofit Organizations’ Networth. Dividing by CPI gives us real (inflation-adjusted) networth.

As you can see, inflation-adjusted Households Networth tends to fall for at least 2 quarters for an equities bear market and economic recession begins. Households’ Networth has been trending higher, which is a medium-long term bullish sign for the stock market.
1 am: CEO’s are optimistic. A bullish leading indicator for the economy and stock market.
CEO optimism fell a little. But the key point is that CEO optimism is still trending higher. CEO optimism tends to lead capital investment, which is a key contributor to economic growth. Here’s the Business Roundtable’s CEO Outlook.

This implies that capital spending will increase over the next few months, which is a medium term bullish sign for the economy. And since the economy and stock market move in sync over the medium-long term, this is also a bullish sign for the stock market.
1 am: U.S. federal government debt is a lot lower than people think.
Every now and then I read arguments stating why the U.S. federal debt will blow up and how that will cause financial Armageddon.

I agree that this will be a long term problem. However, it will not cause a crisis like the EU crisis of 2010 and 2012.

  1. For starters, the Federal debt is a lot lower than most people think. Of the $20 trillion in Federal debt, the U.S. government owes $7.8 billion of that to itself. So the debt is more like $12.2 trillion, which is less than 2/3 of the headline #.
  2. The EU crisis of 2010 and 2012 occurred because the ECB is basically a FOREIGN central bank. The ECB had no obligation to back up the debts of Greece, Italy, Portugal, Spain, etc. In contrast, the Federal Reserve will always back up the U.S. debt via money printing if need be.
  3. Hence, the risk of a U.S. default is very low. The Fed will just inflate its way out of a problem.

This is not a medium term bearish factor for the stock market. This is a slow and steady long term problem that will only rear its ugly head once interest rates are much higher than where they are today.
1 am: COT sentiment data is bullish for Australian dollar, bullish on New Zealand dollar, and bullish on Swiss Franc.
COT data is the most popular sentiment indicator for commodities and currencies.
The current COT data is bullish for the Australian dollar.

The current COT data is bullish for the New Zealand dollar.

The current COT data is bullish for the Swiss Franc

Read Stocks on July 28, 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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