Which way is the stock market headed?
By Laif Meidell, CMT, President of American Wealth Management, and Portfolio Manager of the AdvisorShares Meidell Tactical Advantage ETF (NYSE Arca: MATH) and the AdvisorShares Market Adaptive Unconstrained Income ETF (NASDAQ: MAUI)
Stocks closed higher for the second day in a row on Thursday much to many investors’ surprise, as the Standard and Poor’s 500 gained 0.22 percent and the Nasdaq Composite followed suit also up 0.22 percent on the day.
Some investors may be asking themselves, “Was the two-day decline on Tuesday and Wednesday of this week enough to refresh the stock market?”
It’s been several weeks now since we have seen a meaningful decline in the Standard and Poor’s 500, in fact the last time the S&P 500 fell more than 2 percent over a couple of days was in late June following the Brexit. It kind of reminds me of an old Andy Griffith show where Barney Fife goes inside an old home he thinks is haunted (OK, now I am dating myself).
As Barney enters the home, he walks very cautiously on the creaky floor, expecting something to jump out at him. That’s kind of where we are today, with many investors treading lightly on low volume expecting a larger pull back to begin any time soon.
Some investors expect this week will be a short term peak given that its options expiration week, while others have suggested that any major selling will only occur after Labor Day.
On the other hand, what if this long, boring sideway drift is our precursor to the next leg higher? One argument in favor of that scenario is that the stock market’s assent is so gradual, it’s not using the same king of energy that we see when prices are shooting straight up. In other words, there may be more energy still in the tank.
This week, oil received a boost after the weekly EIA petroleum status report indicated a 2.5 million barrel drop in oil inventories and a 2.7 million barrel decline in gasoline inventories. U.S. crude oil is now up roughly 22 percent off the August low closing on Thursday at $48.22 per barrel.
However, the big story this week is one you may not have noticed, and that is the major decline in the U.S. dollar over the last four days. The weaker U.S. dollar is sending the message that it doesn’t expect the Fed to raise interest rates any time soon, and it’s also giving a boost in value to foreign investments that are held in currencies outside the U.S., such as foreign stocks and bonds.
It comes as no surprise then that this week’s top performing bond indexes are the S&P/Citigroup International Treasury Bond index Ex-US up 1.72 percent over the past five trading days, followed by the S&P international Corporate Bond index higher by 1.30 percent.