March 20, 2019

Weekly momentum indicators reach 92%, a relatively rare ‘good’ overbought reading - While our tactical outlook is watching for a pause and/or pullback in early Q2 remains on track, the far more important point is that these high momentum readings have coincided with the early stages of new market cycles which occurred in 1987, 1998, 2002, 2009, 2010, 2011, 2016 and 2018.

03-20-2019 SPY

 

Breadth/thrust indicators continue to signal that equity markets are in the early stages of a new market cycle and pullbacks are likely to be shallow and short-lived. Interestingly, if the past is any prologue for the future, 2016 remains an applicable analogue, in our opinion. A temporary pause/peak in mid-late April would be consistent with the current technical backdrop and would be an event that long-term investors should use to further accumulate equities.

  • The NAHB/Wells Fargo Housing Market Index (HMI) remained unchanged in February at 62, as conditions continue to stabilize after some weakness in 2018.
  • The reading, however, was below the consensus for a one point gain to 63.
  • The components were mixed.
  • Current sales and expected sales picked up, but traffic of prospective buyers contracted at a faster pace.
  • All major regions posted gains, except for the Midwest.
  • Builders said that lower price points are doing well, but still worry about affordability given the rise in labor and other input costs.
The Reuters/University of Michigan Consumer Sentiment Index rose 4.0 points in the preliminary March survey to 97.8, a three-month high, as sentiment continued to recover after the slump during the recent government shutdown. The consensus was for a 1.5-point gain to 95.3. Both current conditions and consumer expectations improved, with the latter showing the largest increase since October 2017. The y/y momentum in sentiment, however, slowed, suggesting weaker real GDP growth in Q1. The one-year inflation outlook fell to 2.4%, matching its lowest level in this expansion, while five-year expectations picked up slightly to 2.5% and remain range-bound.

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