Is this the one?
After a year of dormant market behavior, is this the long-awaited rally or just another tease? The S&P 500 surged above 2,100 late last week, resulting in the best weekly close in market history.
Tale of Two Fridays: The overall stock market looked like a crime scene two weeks ago. The overwhelming majority of stocks were negative amid the worst market day in nearly a year (here is what I wrote coming off the “Brexit” vote). Fast-forward two weeks and we saw nearly the opposite this past Friday:
As you see, nearly every stock in the S&P 500 was positive on Friday. For the week, 8-of-9 U.S. equity sectors were positive (except Energy). This is all very encouraging, but there is still work to be done. The S&P is just a shade below the record daily close of 2,131, and while clearing that would not imply the onset of a big rally, it would be another step in that direction. We want to see a new weekly uptrend emerge, defined by a progression of higher price-highs and higher price-lows from this current level.
Let’s look at the S&P 500 index over the past three years:
This is a weekly chart. Each candle represents one week. In the top half you will notice a couple things. First, the highlighted area shows how last week’s gain stands out from prior weeks, evidenced by the strong move above 2,100. However, also notice that prior uptrends in February and October failed near the same point the S&P index currently resides.
Is this another failed attempt, or, the beginning of a real uptrend? No one knows for certain, but one indicator suggests it may be good news…
Relative Strength: The bottom half of the chart shows Relative Strength (RSI), which gauges buying vs. selling momentum relating to S&P 500 stocks. Weekly RSI finished above 60 for the first time since Feb. 2015. RSI continues to be mixed on both daily and monthly timeframes, but the weekly measurement is quite positive.
Why we care: We use RSI within our investment management process used for managing client accounts. It helps validate our confidence in the price trends we perceive and influences our investment decisions. We prefer RSI to have a value above 60 that is also trending upward. Ideally we would like to see these characteristics shared across daily, weekly and monthly timeframes, but it can be difficult to find such ideal alignment across all three. Right now certain equity sectors look good across all three timeframes while others do not. This is partially why our current investments are sector-focused. We remain cautious about the S&P 500 as a whole.
Investor feelings: Market sentiment among investors polled in the latest American Association of Individual Investors (AAII) survey was as positive as it has been since April:
The 27% negative response rate was also the lowest (best) since April. It is also just the second time over the past 11 weeks where bulls have outnumbered bears. The majority remain undecided, which is pretty reflective of a choppy market.
Job growth expands: Companies hired +287,000 workers in June, the most since Oct. 2015. However, the official unemployment rate actually worsened from 4.7% to 4.9% due to a greater proportion of workers entering the labor force relative to those employed. (The “labor force” represents the number of adults who are either working or actively looking for work.)
This made June a bizarre month for hiring. We have often seen the opposite – weak hiring and an improving unemployment rate. This occurred because the negative impact of weak hiring was offset by the “positive” impact of more people leaving the labor force (e.g. quitting the job search). Those who leave the labor force are not counted in the official unemployment data.
Who inherits your investments? An easy, yet commonly overlooked aspect of financial planning is the importance of naming and updating beneficiaries, specifically for IRA and 401k accounts. When I was reviewing investment accounts for two new clients recently I discovered some valuable findings for them — one had not named any beneficiaries on their IRA and the other still had their ex-spouse listed as the primary beneficiary on theirs!
The most obvious reason to update your beneficiaries is to ensure that upon death your wealth seamlessly transfers to those you want. Naming or changing beneficiaries is simple, yet many neglect to do it. I recommend checking your beneficiary elections as soon as possible. Then, set a calendar reminder to review them again every six months. This is especially helpful if you have recently:
- Had a child
- Gotten married
- Gotten divorced
- Had a child who got married
- Became a grandparent
- Suffered a death in the family
- Experienced a big change in your personal wealth
- Wanted to add primary beneficiaries, contingent beneficiaries or amend the percentage ownership splits between them
For more information, check out what you need to know about beneficiary designations, from industry colleague David Waldrop, CFP®. Feel free to contact me directly for more as well. I can show you how to easily update your beneficiary elections.
Links This Week
- 11 ways to stop your splurge spending
- Stock Options 101: What to know if you own company stock options
- 5 things to know about earnings season
- 15 best U.S. cities for retirement
Percension Wealth Advisors, LLC is a Seattle-based Registered Investment Advisor. We manage long-term investment portfolios for clients, within the blueprint of the specific financial plan we create for them.
Brian E. Betz, CFP®
Percension Wealth Advisors, LLC
Seattle Registered Investment Advisor
Office: (206) 455-2765