Stocks Hit A 7-Month Low

Thanksgiving week was anything but gravy for investors.

It is normally pointless to gauge too much from the holiday-shortened week because the stock market was closed Thursday and only open for three hours on Friday. However, a near-4% loss for the S&P 500 is noteworthy, even if trading volume was weak. (For context, if trading volume is high it usually gives stronger validation to market moves.) But now the S&P 500 index is again negative year-to-date and sitting at the lowest weekly closing price since April.

Take a look at the weekly chart of the S&P 500…

(created in stockcharts.com)

The highlighted section is 2018. You will notice that the market was poised to take off in mid-September, only to reverse course. The picture now looks very different, with stocks essentially having gone nowhere this year.

The fact is, the stock market is weak right now and perhaps weaker than it has been at any previous time in the past two months. The biggest reason is a pretty simple one: Stock prices fell to new lows. This past week’s closing price for the S&P 500 index of 2,633 was lower than the closing price of 2,659 from the week ending Oct. 26th. This is troublesome when looking at the weekly trend of the overall stock market, through the lens of the S&P index.

While a December rally is not out of the question, odds are stocks will continue to be choppy into year-end. Most client accounts continue to hold sizable cash positions. We would love nothing more than to allocate all of that cash, but it has not been prudent to do so in recent weeks. More on our current investment holdings below.

Despite the poor market week, I hope everyone had a relaxing Thanksgiving holiday.

In The Market...

The S&P 500 fell -3.8% last week. Let's look under the hood:

(price data via stockcharts.com)

Another rough week that saw every major stock sector in the red. Technology got hammered (down -6.0%) while Utilities were the best-performing sector despite still being down more than -1.0%.

Perhaps most concerning is that high-yield bonds continue to break down. I believe high-yield bonds provide a nice proxy for the future direction of stock prices, because they represent the middle-ground between stocks and more conservative bonds. The recent price declines within high-yield bonds has had me concerned about stocks for a number of weeks.

The two funds we currently own — Utilities (FXU) and a high-dividend S&P 500 index fund (SPYD) — were only down -1.6% and -2.4%, respectively, last week. These were both relatively better performers than the S&P index, despite still being negative on the week. When you combine that with the fact that we are holding a significant cash position I feel strongly about our current investment allocations. If market conditions improve, Health Care (XLV) is still the area of the market we will look to buy.

If you have any questions, please ask. Sometimes it is hard to boil down the tremendous amount of analysis Josh and I do into a short weekly blog. But know that we are continuously monitoring the market, adhering to our process and ready to buy or sell if conditions warrant doing so. Until market health improves, it is important to keep playing some defense.

In Our Portfolios...


What's New With Us?

I enjoyed a nice Thanksgiving with my family up Whistler, B.C. this past weekend. Other than the fact that there was more rain than snow, it was relaxing few days away. We came back a bit early, in time for us to go cut down our Christmas tree and hang all of our lights for the upcoming holidays.

Have a great week!

Brian E Betz, CFP®
Principal