Weekly Market Update 11/24/2019Posted Nov 24, 2019
The S&P 500 fell -0.33% this week with Friday's close at 3,110.22. We came into this week on a six-week winning streak, and fell just short of making it to seven. The index traded narrowly again this week, with a weekly high at 3,127.64 on Tuesday and a weekly low at 3,091.41 on Thursday, a high-low range of just 1.17%.
Given the daily headlines of "deal or no deal" on the trade front, the lack of selling pressure this week is another fairly encouraging sign. Wednesday's price action is an example. The index traded down to 3,091.41, an intraday decline of -0.92% from Tuesday's close, only to then finish Wednesday's trading at 3,108.46, a decline of just -0.38%. Given the sprint we've been on since early October, the index was ripe for a selloff on Wednesday. The upside reversal from the day's low suggests market participants had other ideas.
The short-term picture for the S&P 500 remains constructive. The index is due for a breather, and that can manifest as either a period of sideways trading or a healthy pullback of -2-3%. Visually speaking, as long as the price of the S&P 500 sustains above its prior peak, it's likely that the index is trending to the north, slowly but surely.
In the event we do pullback, we believe we'll land in the shaded red region on the chart below. This covers the ~2,991-3,024 region, and we view this area as a confluence of support via prior resistance at all-time highs and the Fibonacci 38.2% and 50% retracement when connecting the October low to our current all-time high. A confluence of support like this is never consistently predictive, but it's not subjective, either. In other words, we imagine most participants are aware of these objective levels, and are then expecting other participants to be eager buyers in the event the S&P 500 revisits the ~2,991-3,024 region. This in turns drives their desire to be an eager buyer themselves, and it's one of the ways a chart appears to illustrate predictive qualities - the ole self-fulfilling prophecy.
S&P 500 Primary Trend - Up
The S&P 500's primary trend is labeled as up, or "bullish". The index continues to trade comfortably above any and all widely followed moving averages. The S&P 500's trailing returns, both on an absolute and relative basis, all appear favorable.
During uptrends, long-term investors are generally best served including the equities/stocks asset class across their asset allocation and relying on mostly passive or strategic investing methodologies. This is how long-term investors position their portfolio in the present to obtain "up-market capture" into the future (i.e., if the S&P 500 gains 10% over the forward 6 months, how much will your portfolio "capture"?).
This is the foundation of capital appreciation for long-term investors, and it's a derivative of primary uptrends, or "bull markets", for the S&P 500. It isn't until the primary trend can be labeled as down, or bearish, that investors are best served minimizing, or excluding, the equities/stocks asset class and relying on more active investing methodologies. We're not there yet, so long-term investors shouldn't let the fear of striking out keep them from playing the game.
That said, there's no better time to have a plan to manage the risks associated with a primary downtrend, or "bear market", than when the S&P 500 is in a primary uptrend, or "bull market". As we write today, most investors are positioned to keep piling up the returns in the event the S&P 500 continues to trend to the north over the foreseeable future. Therefore, our time is better spent making sure we won't have to pay back too much of these returns when the market climate isn't as friendly, whenever that may be.
There are a variety of strategies that can help long-term investors blunt the damage associated with "bear markets". From financial planning, to diversification, to alternative investment strategies, there's a gigantic world of investment approaches and opportunities other than just owning stocks and bonds based on your age and a supposed risk tolerance. Now is the time to learn all we can about the strategies that can keep us safe during the next crisis, because learning all you can about earthquake insurance after the earthquake isn't overly helpful.
Curious Consumer Strength - Target Surges
Did you shop at Target this week? According to Target's stock, there's a good chance you did! (I did. They have my favorite cookies, Mallomars).
Target (TGT) climbed 12.86% this week with Friday's close at $127.02. Friday's close is a fresh new all-time high and leaves the stock redefining the term "overbought" on its daily, weekly, and monthly charts. TGT is higher by 98.31% thus far in 2019 (not a typo), and has climbed ~60.13% since early August's daily closing low at $79.70. What a run!
(Please note that TGT is not a past or present recommendation of the adviser)
Target is held in the S&P 500's Consumer Discretionary Sector (SPCC), which obviously suggests the company's profitability is closely linked to the health/behavior of the consumer. This begs the question, is TGT's surge to the upside a sign that the consumer is healthy and recession fears of 2020 are overblown? Or, is it a sign of a single company having tremendous success at the ground level, outpacing the competition? We obviously don't know, but the S&P 500 Consumer Discretionary Sector isn't exactly behaving alongside TGT, which suggests it may be the latter.
SPCC has been mostly flat since the month of April, even while the market as a whole has climbed to fresh, new, decisive all-time highs. In fact, SPCC's close on Friday is nearly -5% below its all-time high daily close at 989.17.
If we analyze SPCC relative to the S&P 500 itself, we can see how SPCC has been a huge laggard the last two months. SPCC, relative to the SPX, has been in a total free fall, and is tremendously "oversold".
Putting it all together, the lack of strength in SPCC, both in absolute and relative terms, is mostly an ominous sign and suggests that TGT's success is idiosyncratic (i.e., specific to TGT and TGT only). The fact the S&P 500 has held up as well as it has with weakness in SPCC is attributable to the rotational developments happening beneath the S&P 500's surface.
In our Weekly Market Update last week, we highlighted the healthcare sector coming back to life and breaking out to fresh new all-time highs. In our Update the week prior, we highlighted the financial sector coming back to life. It's no surprise to us that healthcare and the financials were the top two sectors this week, with healthcare gaining 0.85% and the financials gaining 0.50%.
As we wrote last week, what stocks and/or sectors you own matters. It's a potential source of "alpha" if long-term investors can correctly identify the prevailing sector trends and align their portfolio accordingly, especially when the future for beta (the S&P 500) isn't likely to be as favorable as the past.
Steve, Rick, and the AlphaCore team
This material is being provided for client and prospective client informational purposes only. This commentary represents the current market views of the author, and AlphaCore Capital in general, and there is no guarantee that any forecasts made will come to pass. Due to various risks and uncertainties, actual events, results or performance may differ materially from those reflected or contemplated in any forward-looking statements. Neither the information nor the opinions expressed herein constitutes an offer or solicitation to buy or sell any specific security, or to make any investment decisions. The opinions are based on market conditions as of the date of publication and are subject to change. No obligation is undertaken to update any information, data or material contained herein.
Past performance is not indicative of future results. Any specific security or strategy is subject to a unique due diligence process, and not all diligence is executed in the same manner. All investments are subject to a degree of risk, and alternative investments and strategies are subject to a set of unique risks. No level of due diligence mitigates all risk, and does not eliminate market risk, failure, default, or fraud. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable, or will equal the investment performance of the securities discussed herein. The commentary may utilize index returns, and you cannot invest directly into an index without incurring fees and expenses of investment in a security or other instrument. In addition, performance does not account other factors that would impact actual trading, including but not limited to account fees, custody, and advisory or management fees, as applicable. All of these fees and expenses would reduce the rate of return on investment.