The past two days have been rather ugly for stocks.
In Tuesday’s session, the S&P 500 lost 1.23%. Today, with about two hours remaining in the trading session, the S&P 500 is down more than 2%. The same decline, percentage-wise, can be seen in the Dow Jones Industrial Average, which also was down about 2% with just two hours remaining in Wednesday’s session.
The chart here of the major domestic indices over the past five trading sessions tells us all we need to know about the direction of stocks right now. That direction is rather bearish, and that has many market bulls wondering if the dam is about to break on this 10-plus-year bull market.
Yet before we jump up to any notions that the party is over on Wall Street, it makes sense to keep in mind that year to date, the major indices are still firmly in bull territory. And, we can see that if we widen the lens of our chart to show just how well stocks have done since the beginning of the year.
Yes, the bull remains intact, for now, yet there are a couple of warning signs here that we need to pay attention to. To highlight those warning signs, take a look at the chart below of the S&P 500 year to date, which includes the key 50-day moving average (blue line) and the key 200-day moving average (red line).
Chart courtesy of StockCharts.com
As you can see, today’s price action has sent the benchmark measure of the domestic equity market below the 50-day moving average. This last happened in August, as trade war angst over the devolution of trade talks between the United States and China really ramped up.
Today, that trade war angst remains largely in full bloom. Yet there are other reasons why stocks are down over the past two trading days, and they are the absolutely ugly manufacturing data we saw on Tuesday and the downbeat jobs data we received this morning.
As for the latter, today’s ADP Employment print showed private hiring slowed to 135,000 in September. Moreover, August hiring was revised down by 38,000 to 157,000. We’ll get a better sense of the job market when the official employment report comes out Friday morning, but weakness here will not be a good sign for the economy and markets going forward.
The bigger issue, which is related to trade angst, is the news we got on Tuesday of the descent into contraction territory in the ISM Manufacturing Index. The headline number in the report fell to 47.8 in September, which represents the sixth consecutive decline in the measure of U.S. manufacturing. In this report, any headline below 50 indicates contraction. Even worse, the 47.8 number was the lowest reading since summer 2009.
The dismal ISM data does increase the chances of another rate cut by the Federal Reserve at the October Federal Open Market Committee (FOMC) meeting, but that was not enough to soothe investor concerns that the Fed is falling increasingly behind the curve with regard to its efforts to keep the economy from falling into a broader recession — and the result has been a selloff of nearly 850 Dow points in less than two days.
Now, the good news here is that the market remains above the more important moving average, the long-term, 200-day moving average. This is the key metric I will be watching, as that will tell me if it’s time to take action and lighten up on equity allocations. If we break below this support level, then adjustments to portfolios must be considered.
Another silver lining here is that if you are a subscriber to my newsletter advisory services, you will be the first to know if this key selling signal is triggered — and, more importantly, what you need to do to make sure you preserve your capital and protect the gains you’ve made during this long, and long-in-the-tooth, bull market.
For more on how you can become a subscriber to my newsletters, simply go to JimWoodsInvesting.com.
ETF Talk: Dip into Major European Markets with This ETF
The Vanguard FTSE Europe Index Fund (NYSE: VGK) is an $18.26 billion exchange-traded fund (ETF) that tracks an all-cap index of developed European securities.
The FTSE Developed Europe All Cap Index tracked by VGK is a market-capitalization-weighted index that is made up of approximately 1,333 common stocks of large-, mid- and small-cap companies in 16 European countries. The fund holds stocks of companies specifically in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
VGK invests all, or the vast majority, of its assets in the common stocks included in the FTSE Developed Europe All Cap Index.
However, current headlines, especially about a potential a “no deal” Brexit, appear to be having a negative effect on the fund. VGK is down about 1% in the past month, with the fund allocating more than 23% of its assets to equities in the United Kingdom.
“Close to $177 million has left the Vanguard FTSE Europe ETF in September, after the fund suffered its biggest daily withdrawal in more than 10 months,” according to Bloomberg. “More than 23% of its holdings are in British companies, which still have little clarity on the nation’s future relationship with the European Union.”
European markets have been mired by political risks surrounding the ongoing Brexit talks, government finance in Italy and weak German growth. Notably, British lawmakers voted in September to once again delay the United Kingdom’s exit from the European Union.
Chart courtesy of StockCharts.com
The Vanguard FTSE Europe Index Fund’s top 10 holdings include Nestle SA (OTCMKTS: NSRGY), 3.51%; Novartis AG (NYSE: NVS), 2.06%; Roche Holding AG Dividend Right Cert (OTCMKTS: RHHBY), 2.03%; HSBC PLC (NYSE: HSBC), 1.53%; Royal Dutch Shell PLC Class A (NYSE: RDS.A), 1.29%; BP PLC (NYSE: BP), 1.27%; Total SA (NYSE: TOT), 1.26%; AstraZeneca PLC (NYSE: AZN), 1.23%; SAP SE (NYSE: SAP), 1.21%; and Royal Dutch Shell PLC B (NYSE: RDS.B), 1.08%.
These top 10 holdings only make up 16.47% of the fund’s total assets, making it very diverse and thus potentially less volatile. With a share price currently sitting at $51.69, VGK has a 3.42% dividend yield and is up about 13% year to date.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
Philosophy, the Power of Fiction and How to be An Ideal Man
If you’ve been reading The Deep Woods for a while, you probably know that one of my favorite novelists and philosophers is Ayn Rand. I highly recommend her challenging novels “The Fountainhead” and “Atlas Shrugged,” along with her non-fiction, to anyone within an earshot of my voice or within spying distance of my writing.
I first read “Atlas Shrugged” in 1984, and it changed the entire focus of my life. Yet it took me many years to fully appreciate the depth of the work and the importance of Rand’s ideas.
So, how does a man go from reading “Atlas Shrugged” just nine years ago to becoming the President and CEO of the Ayn Rand Institute?
This fascinating story is the subject of the new episode of the Way of the Renaissance Man podcast, as I speak with Tal Tsfany: entrepreneur, leader, thinker and all-around Renaissance Man.
In this episode, you’ll learn how Tal was introduced to Ayn Rand, how her ideas quickly took over his thinking and how he used the inspiration and courage he drew from Rand’s work to leave a comfortable corporate job and create a Silicon Valley tech startup.
(Photo Credit: Unlock Your Wealth TV)
You’ll also learn about Tal’s simple, yet eminently beautiful, four-step system for achieving real happiness in life, which all begins with having a proper definition of what happiness truly is.
Plus, Tal shares his thoughts on how to remember the best days of your life, which ironically often come at one’s lowest point. You’ll also find out how to become really good at introspection, how to be a better valuer of life and how to integrate your values with actions.
I really loved this discussion with Tal, and as you’ll discover, our mutual love of ideas; the pursuit of happiness, music and even auto racing all contribute to the Renaissance Man chemistry of this discussion.
To listen to this episode of the podcast, simply click here right now.
For more about the Ayn Rand Institute, please visit AynRand.org.
“If you cannot write well, you cannot think well; if you cannot think well, others will do your thinking for you.”
— Oscar Wilde
Writing is no easy task. To do it, as Hemingway famously said, “All you do is sit down at a typewriter and bleed.” Yet writing is essential to thinking, because those who write well learn to also think well.
And as Wilde tells us, if you cannot think well, then others will do your thinking for you. If you want to be an independent, rational and proud human, then you need to take on the most important responsibility a person can ever take on — the responsibility of thinking. Abdicating this responsibility is simply the one sin that, in my opinion, is unforgivable.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.