Helping Self-Directed Investors Succeed Blog - Crucial Period for Markets as of Feb 24th, 2019

Crucial Period for Markets as of Feb 24th, 2019

February 24th, 2019

Markets globally have been rising steadily after hitting an important near-term bottom on Christmas Eve, 2018. While the S&P 500 has not been the leader in this up-cycle, its tracking ETF - SPY - is up +11.67% for the year. The NASDAQ 100 Tracking ETF - QQQ is up an impressive +12.08%. The Dow 30 Tracking ETF - DIA has gained +11.48% year to date. As proof this rally is indeed global, the MSCI - All World Index Tracking ETF - ACWI has moved almost in lockstep with the US benchmarks rising +10.97% for the year.

In a welcome development, the Small Caps are outpacing the Mid Caps and Large Caps. The S&P 600 Small Cap Index Tracking ETF - IJR is up an impressive +17.09% this year. The S&P 400 Mid Cap Index Tracking ETF - MDY is not far behind at +16.38%.

First quarter earnings season is in full swing. As of now we are seeing mixed results. Investors are rewarding growth heavily and punishing underperformers severely. More importantly, the earnings growth projections for the next quarter and 2019 for a variety of companies are not as robust as one would expect. Despite this, growth oriented sectors such as Software and Services, Semi Conductors have logged astounding gains this year far outpacing the broader market. Also encouraging is the Transportation and Industrial Sector gains which have also outpaced the broader S&P 500 by a wide margin.

From a technical perspective the QQQ is straddling the key 40-week moving average while SPY and DIA have moved ahead of this metric a few days ago.

The earnings season will soon draw to a close and the bull market, one of the longest running in recent times, will enter a crucial period. With economic data not showing robust growth in the US, the Fed has been very dovish about hiking interest rates. Talks between US and China on bilateral trade have intensified in recent weeks and investors desire for the outcome to be mutually beneficial for both US and China. If this outcome does not pan out, investors clearly will have a reason to dump stocks as an outright trade war will be damaging to both economies in the short run.

Self-directed traders have to remain cautious during this crucial period and be very selective in stock selection, and nimble with risk management. Long term oriented investors will have to see if their portfolio is diversified enough to weather the course, if need be.

Good Luck and Happy Investing!

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