richinvesting posted: " I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly "Long Term" update will be on the second Wednesday of each month, and th"
I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly "Long Term" update will be on the second Wednesday of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a primary bear market, and buy back in for most of the next bull market.
If you lose your bookmark to the blog, google "Rich Investing" and it should show up on the first page or so.
I added a new entry in the Classics section, it is my recent post on why healthcare costs so much in the US. A friend called it "an instant classic"!
Economy:
Existing-home sales rose 2% to an annual rate of 5.99 million in July. Sales of new homes increased 1% to an annual rate of 708,000 in July after three consecutive months of declines. Durable goods orders dropped .1% in July on weakness in orders for new airplanes. Initial jobless claims for the prior week were 353K, in line with recent levels. The U. of Michigan consumer sentiment index final for August was 70.3, down significantly from the July read, on concerns about inflation and the delta variant.
Home sales are strong because of the absurd low interest rates. Thirty year fixed mortgages are still between three and four percent. This has allowed the median home price to rise too rapidly with the median home price around $390K, up 15% year-over-year. People who buy an overpriced home now will not be happy in a few years, after interest rates return to more normal levels and buyers then will not be able to afford the note on a $390K home. I don't think we will face a 2008 mortgage crisis because these loans are fixed, so they will not reset higher to unaffordable levels for the people that hold them now. Also, loans have not been granted to un-creditworthy borrowers like in 2008. If you can afford a $400K home, you have a good job, and if you have to take a $50K haircut to sell it, it will hurt but not be catastrophic to your financial picture. It will be a problem for some, but not a big problem.
Geo-Political:
The infrastructure bills, both of them, are working along in congress, but with the summer recess not much is happening right now.
The big news this week was Fed chairman Powell's speech at Jackson Hole, which went about like most suspected it would. He said inflation is above target like they wanted and he still feels it is transitory, and that substantial progress has been made in employment. If those conditions continue, some on the Open Market Committee feel the Fed could begin to reduce their asset purchase program this year. He has to be vague, but also when the time comes to cut back on bond purchases, he must be able to say "we signaled the end of the bond purchases", and he has given the signal.
If the formal announcement of the taper happens at the Sept. Fed meeting, I would expect some market volatility, even though it has been signaled. Then the market will normalize if history is a guide.
If the Fed stops buying so many bonds, then somebody else will have to buy the bonds. Luckily the enhanced unemployment checks end in September, so the level of monthly govt. debt will go down just at the time the Fed cuts the bond buying program down. Imagine that (sarcasm alert), it almost looks like they planned it that way!!! But, when somebody else has to start buying the govt. bonds, they will probably not be willing to buy a 10 year Treasury bond yielding 1.3%. In order to get those sold, they market will demand a higher yield, so the market will force up the long end of the treasury yield curve. The salvation for the US may be that there are still negative interest rates in Europe, so those investors buy US treasuries because +1% looks better than -.5%. The only thing the European investors have to worry about is the value of the dollar because it would not have to fall much to wipe out the yield advantage they thought they had.
Technical Analysis:
For the week the S&P 500 was up .5%, closing at a new all-time high.
Technically (see chart below) the market looks good. RSI at the top of the chart is in high-neutral at 64. Momentum shown by MACD at the bottom of the chart is neutral and flat, but shows a minor bias to rise. The price action is clearly positive.
Passage of an infrastructure bill should be stimulative for years building roads and bridges. It depends on what tax measures are needed to pay for the building, but I suspect it will be a net positive overall. The delta variant and inflation have hurt consumer sentiment, and that could pull down economic activity a bit in the Q3.
What am I doing? I mostly replaced option contracts that expired last Friday, which is a way I generate income on stocks that don't pay dividends. I bought a little SMH and XLK, and placed trailing stop loss percent orders under each, immediately. I had a high ball sell order on RBLX at 90, so that sold this week. It is at 85 today, so I can buy it back cheaper, but I'm not sure it is finished falling. I will probably buy some, then place a low ball buy order to add more on weakness, if that happens. RBLX was a stock that I had a covered call sold on it that expired last Friday. I made money on the call, but rather than sell the next call without stopping to consider if the stock was at a high point, I did stop to consider that and decided to sell it. When covered calls expire, I recommend you consider whether you should sell the stock or sell the next covered call. I made the same consideration on MSFT recently and sold the stock at 286, a recent high. MSFT has just gone up to 300, so that has not worked out yet, but let's see.
----------------------- If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.
I would like to call your attention to a page of my blog called "CLASSICS". It is located at the top of the blog, on the banner just under the title. The banner has links to "Home", "About", and now "Classics". These are articles that I wrote one time for the blog, but they are valuable insights at all times for investors. I will announce in the weekly blog when I add a new classic.
Your comments and questions are always appreciated, so feel free to comment using the "Leave a Comment" feature just under the title of the post.
You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update.
I am a retired person and preserving capital and seeking income are important objectives for me. I also want a growth component to my portfolio, while minimizing major risk. My style of investing will not suit everyone. I like to sleep well at night.
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