For all intents and purposes, the U.S. Stock Market was effectively unchanged last week. The closely watched S&P 500 Index and also the Russell 2000 Index were basically flat, while the DJIA and DJTA were down ever so slightly (-0.56% and -0.36%, respectively), and the Nasdaq Composite was up modestly (+0.68%) for the week.
Given the fact that St. Louis Federal Reserve Bank President James Bullard
predicted last week that the U.S. Central Bank will raise interest rates starting in the
first quarter of 2015 (much sooner than almost anyone on the planet expects), the U.S. stock market showed remarkable resilience yet again to potentially serious bearish news.
“The Fed is closer to its goal than many people
appreciate,” Bullard said on Thursday in an interview with the Fox Business
Network. “We’re really pretty close to normal”, Bullard added.
Most major U.S. stock indexes remain close to all-time record highs, and global interest rates are close to record lows (at least on the short end of the yield curve). Valuation metrics looked "stretched" for many U.S. stocks, but corporate share buy-backs so far this year are at a record pace. Companies spent approximately $160 billion in the Q-1 2014 on purchases of their own stocks. And while Q-2 results are not yet available, it would not surprise me if the total Q-1 and Q-2 purchases exceed $300 billion. While I am not sure of the long term benefit to shareholders of buybacks when your stock is posting record highs, market bulls are certainly not complaining and are clearly in the driver's seat, at least for now.
As can be seen in the first chart below, my computer trading system has yet to trigger an official monthly chart sell signal in the S&P 500 Index (or ANY major U.S. stock index as yet). For most major U.S. stock indexes, the last monthly chart sell signal was officially triggered in July 2007. However, I think it may be noteworthy that monthly chart sell signals have been triggered this month in Boeing (BA) DuPont (DD), General Mills (GIS), Kellogg (K), and Oracle (ORCL).
My best assessment here is that these important individual stock sell signals are a warning sign of trouble immediately ahead for the broader U.S. stock market.
Interesting Postscript (added Sunday night, June 29th): The Bank for
International Settlements (BIS) has warned that ultra-low interest rates
have lulled governments and markets "into a false sense of security". In its latest annual report, the Basel-based organization urged policy makers to begin to normalize rates. "The risk of normalizing too late and too gradually should not be underestimated," the BIS said. "Overall, it is hard to avoid the sense of a
puzzling disconnect between the markets' buoyancy and underlying
economic developments globally," the BIS said. It added that low interest rates had helped increase demand
for higher risk investments on stock markets as well as in property and
corporate bond markets.
While the BIS doesn't set policy, it does serve as a forum for central
bankers to exchange views on relevant topics from the global economy to
financial markets. According to the BIS, "Growth has disappointed even as financial markets have
roared: The transmission chain seems to be badly impaired." The BIS said that policy makers should take advantage of the current
upturn in the global economy to reduce the emphasis on monetary
stimulus. And it warned that taking too long to do this could have
potentially damaging consequences, by encouraging investors to take too
much risk. "Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent." "The predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly."
The BIS was founded in 1930 and is the world's oldest international financial institution. The BIS's membership has more than 60 members including the Bank of England, the
European Central Bank, the U.S. Federal Reserve, the People's Bank of
China, and the Bank of Japan.
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| S&P 500 Index Monthly Chart with 3-Std Dev Bollinger Bands & 36-Month Moving Average Line |
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| Boeing (BA) with 36-Month Moving Average Line and Computer-generated Buy & Sell Signals |
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| DuPont (DD) Monthly Chart with 36-Month Moving Average and Computer-generated Buy & Sell Signals |
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