In The News...

The stock market volatility typically associated with the summer months is picking up. The S&P 500 has fallen more than -2.0% over the past two weeks.

In the grand scheme of things -2% is minimal, yet is still the largest two-week decline since Oct. 2016. This says more about the strength of the rally than it does about current market weakness, but it does beg the question whether more losses are in store before the rally resumes, presuming it does.

What I see: Below is a look at the S&P 500, dating back to the low from Feb. 2016. I turned bullish on the market in the summer of last year. Since then the rising trend has sustained, but has that tide now shifted?

In the long-term I would say no. In the short-term I could see another loss of -2% (or so) before stocks continue their rally. (I say stocks in reference to the S&P because the S&P is the most accurate representation of the total U.S. market.) There are three different price-points where I think stocks could pinball higher, which I have illustrated below. Take a look...

These 3 price-points where stocks could rebound are:

Price of 2,400 (purple line). The S&P 500 struggled somewhat to get above this point. Now that it has, it might have trouble falling below it.
Rising trend (blue line). This could provide a second line-of-defense as a point where stocks bounce.
200-day moving average (purple line). This would be the third, and potentially last, line-of-defense. However this, in my view, would be the strongest possible point that could slingshot stocks out of a rut and onto another rally, due to it being a universally used indicator among investors.

Let's see how stocks respond next week and whether one (or more) of these price areas come into play.

In The Market...

The S&P 500 fell -0.6% this past week. Let's look under the hood...

Stocks: I already mentioned that this was the second-straight weekly decline for the S&P 500 (IVV). Digging deeper we notice that momentum worsened again too. Three weeks ago, 76% of S&P 500 stocks were above their 200-day moving average prices. Today, that ratio is just 63%.

Coincidentally, exactly two years ago this coming week we saw the S&P drop -10% in a matter of days. The difference here, I believe, is that the long-term view of the stock market is stronger than it was then. Back in Aug. 2015 the market had plateaued three months prior to that sharp decline, whereas today the S&P set a record high as recently as two weeks ago. Poor seasonality works against stocks right now on a short-term basis, but I would side with the strength of the longer-term view. If anything, I would expect stocks to remain choppy and move sideways for a bit before there is any big move higher or lower.

At the sector level, Utilities were the only big winner. This is a sector I am strongly considering buying. This would likely come from selling our Health Care (XLV) position, which just has not followed through with the gains I anticipated.

Bonds: It was a typical week for bonds, based on how stocks behaved. Treasury bonds rallied when stocks fell, which is typical because investors tend to migrate from riskier assets into safer ones when stocks decline. High-yield bonds channeled the movement of stocks, but to a lesser degree. This makes sense because high-yield bonds tend to be a hybrid between stocks (risky) and treasury bonds or corporate bonds (less risky).

In Our Opinion...

I received quite a bit of feedback on my thoughts last week pertaining to North Korea. To be clear, one thing I do not do is politicize the stock market, for three reasons:

I do not believe that presidents, politics, etc. influence the market anywhere close to the degree that "experts" would lead you to believe, especially in the long-term.
Even if/when they do, it is impossible to measure such impact. In order to do so, you would have to know what motivates the buying and selling decisions of every investor who participates in the market on a given day. That is impossible.
I am simply uninterested in debating politics relative to the market.

I appreciate that most of you have strong opinions when it comes to Trump, Congress, the Federal Reserve, tax laws, Social Security, health care and anything or anyone else you feel influences the market. I genuinely respect those sentiments. I too have opinions on such things, but those thoughts are beside the point of what we're trying to do here, which is to continually assess the stock market and make wise decisions when it comes to investing and financial planning.

If I reference a specific politician or law, consider it a reference to the facts themselves rather than a personal referendum or opinion.

In Our Portfolios...

Q&A/Financial Planning...

When is the best time to invest?

I have heard this question often over the past year, from people who are able to invest but have not done so. Despite being ready and able, they refrain for whatever reason -- usually because they fear the market is due to fall.

The short answer is, there is no "best time" to invest. I say that as someone who analyzes the market every, single day of the year. The way I see it, if you continuously invest -- whether through monthly deposits or infrequent lump-sums -- you are going to win some and you will lose some. Meaning, some of the time your money will invest closer to a market top while other times it will invest closer to a market bottom. The market has a bias to go up over time, so the long-term odds should be in your favor.

I would add though that when managing accounts we are judicious about when to make allocations. For example, if you open a new account or add funds to an existing one, we won't necessarily immediately invest all of the funds. It may be more pragmatic to wait until the prices of the investments we seek to buy come back to a level that makes sense to do so. I would not recommend doing this with your 401k, for example, because chances are you do not monitor the ebbs and flows of the stock market.

What's New With Us?

No new news on our end. Have a great weekend!

Brian E Betz, CFP®
Principal

Market & Financial Planning Commentary

Is The Season For Stock Market Selling Upon Us?