As for the stock market specifically:
March 8, 2021 – Strong days bookended three days of weakness in the middle. The overall result was that the S & P 500 and Dow Jones Industrial Average saw small gains, while the Nasdaq Composite took a beating. International stocks also rose a modest amount.
Let me speak to the table at the top. Look for the 1-year numbers to bounce all over the place in the next 2 months. Things started getting wild this time last year, and continued through early May before “normalizing.”
I am not about to say we are in a redux of the 1999 irrational exuberance market ( I know, Fed Chair Greenspan made those comments in 1996 but it applies so well for ’99) that led to the Tech Wreck that started in March 2000. While anything is possible, we’re not there yet.
Let’s spend a moment on what I see in my charts.
- The major market averages are under the control of supply (selling).
- I also see value stocks gaining traction while growth stocks wane. The value stocks doing best seem to have links to commodities – an asset class that is doing well on inflation expectations. In 2020, growth stocks did very well, while value stocks did little. The relative strength relationship between ‘growth vs. value’ has now shifted favoring value.
- Another item of note I see is that small company stocks continue to dominate over large cap stocks. Here too, the relative strength relationship of ‘large vs small (even mid sized)’ companies has shifted away from large now favoring small and mid-sized companies.
Let me now paint a less optimistic picture. The major market averages are making lower highs, and lower lows. The percentage of stocks in uptrends though still very high (80% of stocks remain in positive trend) reversed to defense. The percentage of stocks with positive relative strength is now on defense with only 43% of stocks outpacing the 500 largest stocks trading in the U.S., suggesting a narrowing of strength. The bullish percent indicators also saw significant declines last week. What this says in market language is that fewer stocks are supporting the load. In English, be alert we are in WEALTH PRESERVATION mode.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of March 5th, 2021 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Labor provided news of a great employment report for February. The economy added 379,000 jobs in the short month, and had upward revisions to the numbers for January and December. About 355,000 of the new jobs counted came in the hospitality industries of hotels and restaurants. The unemployment rate fell to 6.2%. The economy is still short 9.5 million jobs compared to the record of February 2020, with the bulk of the “missing” jobs in hospitality. Treasury Secretary Janet Yellen said she expects the economy to return to full employment in 2022. The labor participation rate came in at 61.4%. The report I have did not mention income rates.
The trade deficit for January grew to $68.2 billion dollars, up 1.9% from December 2020’s number. The American consumer raised the amount of stuff we import by 1.2%, and manufacturers sent 1.0% more product overseas. The substantial increase in imports came in the form of consumer electronics.
The Federal Reserve released its Beige Book of economic activity for February. They described a modest increase of business activity in February compared to January. They also stated businesses expected continued improvement in 2021. Businesses also reported supply disruptions of production materials, especially in the housing industry.