It has been a tough month for stocks and February wasn't much better. Granted, it was a small price to pay for last year's great gains, but, as in life, all good things must come to an end. Will April bring more of the same for us or can we hope for something better?
Much depends on White House initiatives, "Spanky's" (the President's new nickname) tweets, and the world's response to the administration's trade war initiatives. None of the above is certain, and, as readers know by now, the markets hate uncertainty.
This quarter, both the S&P 500 and the Dow Jones Indexes have seen a nine-quarter win streak come to an end. As of this week, the stock market has lost 40 percent of the gains it has enjoyed since Donald Trump's election victory. You could say "easy come, easy go," or you could be concerned that the other 40 percent could disappear just as fast. I am of the camp that those gains will stick around, largely because of the economy's underlying strength.
Could we see further downside? Technically, a case can be made for another 200-point decline in the S&P 500 Index to 2,462. It would first need to slice through support at 2,532. The evidence for that bear case is no stronger than that of the bull case. This week, we brushed, but didn't touch, the 200-day moving average, which is always a line in the sand for bulls and bears. Below it, we're in trouble, above it, green lights ahead. We have tested this level two times so far this year. Will a third time be the charm, and if so, for whom, the bulls or the bears?
Clearly, this year's winner thus far has been volatility. After months and months of declines, the VIX has risen and it has done so with a vengeance. Anyone (other than the professionals) attempting to trade the daily moves of the markets has ended up in a padded cell somewhere. The out-sized moves both up and down have been led by the technology sector. That's a bit of a problem for the market.
The technology sector, which has led the market's advance for the last five years, appears to have rolled over. The FANG stocks (everyone's go-to group of gainers) have run into regulatory trouble. Facebook's involvement with the surfacing Trump campaign scandal, involving Cambridge Analytica, has caused the whole group of social media stocks to fall under a cloud of suspicion.
Investors and traders alike, are concerned that world governments are on the verge of adopting new and more restrictive rules and regulations on these companies with far-reaching results. None of which will be positive for their stock prices. As a result, the NASDAQ, the tech-heavy index, has had its worst month since January 2016.
Certainly, there are good things that may be lurking just over the horizon. The North Korean situation is turning promising. Meetings between "Fatty the Third," (the popular name for Kim Jong Un among the Chinese citizenry) and our own "Spanky" Trump, as well as Prime Minster Abe of Japan and South Korea's President, Moon Jae-In, are encouraging. All these meetings are happening in April.
So far, the tariff talk from our trading partners has been conciliatory and their language deliberately low-key so as not to set off another tirade of tweets from our Tweeter-in-Chief. As I have written before, I do not believe that Trump will go over the deep end on a serious trade war unless provoked. The problem is that no one knows when and what will provoke him.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
Pittsfield.com welcomes critical, respectful dialogue. Name-calling, personal attacks, libel, slander or foul language is not allowed. All comments are reviewed before posting and will be deleted or edited as necessary.
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.