Our Stock Market Shows Fatigue after Great Bull Run
By Saghir Aslam
Rawalpindi, Pakistan

 

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfill their moral obligations towards charitable activities)

Bulls keep squeezing gains out of the US equity market, sending the S&P 500 Index to its longest streak of monthly gains since 2014 just two weeks after reaching a record. Our stock market shows fatigue after great Bull Run down and as has also been hitting new high. This has been a record-breaking rally. Even more interesting is that most people, even Guru’s of the market did not expect it.

How much more juice is left in a rally that showed signs of lethargy as the month wore on is another question.

Powered by better-than-forecast earnings and weakening odds of a Federal Reserve interest rate increase, the S&P 500 jumped 3.6 percent in July, the biggest advance since March. Technology stocks led the way, climbing more than 7.8 percent thanks to strength in   Alphabet   Inc., EBay Inc. and Microsoft Corp.

The benchmark index for American equity is up 6.3 percent in 2016, erasing a loss that exceeded 10 percent at the depths of February’s selloff. Almost $3.7 trillion has been restored to share values since that bottom as recession anxiety dissipated and commodities surged.

“July was a market that moved up because the underlying backdrop in the U.S. remained intact.”

“The global central banks voicing that they will continue to act as a backstop has helped the market rise to that all-time high, though it has settled for the last couple weeks.”

The S&P 500 ended July at 2,173.60, two points below its all-time high. The Dow Jones Industrial Average added 502.25 points, or 2.8%, to 18,432.24, and the Nasdaq 100 Index surged 7.1 percent for its best month since October.

The prospects for additional central-bank stimulus continue to support equities, with the odds for a Fed rate hike by December falling to 34 percent. Better-than-forecast economic data and corporate earnings that broadly beat projections have also helped lift stocks. The gauge posted seven records in 10 days in a mid-month stretch, and it’s rebounded 19 percent since its low in February. Its gain this year is one of the best among developed markets.

At the same time, the pace of gains is weakening, with stocks slipping in the final week and at one point   alternating   in the longest stretch of up and down days without a move of more than 0.5 percent ever recorded. Based on forward earnings estimates, the S&P 500’s valuation is the highest since 2002. The Dow fell every day of the final week in its longest slump since mid-June.

After years of skepticism, signs of euphoria are emerging.

Investors poured cash into equities in July at the fastest pace since 2014. Economic growth remained tepid, as weakening business spending limited the second-quarter gain in U.S. gross domestic product to a 1.2 percent annualized rate, less than half of what economists were projecting.

To some analysts, it’s a recipe for disappointment.

Investors waiting for the all-clear sign may need to brace themselves for another month of drama, if history is any guide. August is the most dangerous month out of the year, with the S&P 500 falling by 1.4 percent on average over the last 20 years, according to data compiled by Bloomberg.

(To be continued)

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)

 

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Editor: Akhtar M. Faruqui
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