The Market Gypsy That Lives By Her Own Rules

Each day brings so much news. More than most anyone can handle. However, one story really caught my attention last week.

Last Thursday, July 12, Jerome Powell, the Fed Chair, gave an interview. He said, “I sleep pretty well on the economy right now.” Yet, he also said that recent trade policy actions could alter the Fed’s plans to continue to raise short-term interest rates.

Like our wistful gypsy posed under a broken clock, he went on to say, “We don’t know. It’s very hard to sit here today and say which way that’s going.”

What caught my attention is his worse-case scenario. “You can imagine situations which would be very challenging, where inflation is going up and the economy is weakening.” I’ve not only imagined it, I’ve written about that possibility for quite some time.

Nevertheless, stagflation, recession, or a market that continues north driven by this frightening statistic:

“Amazon, Netflix and Microsoft together this year are responsible for 71 percent of S&P 500 returns and for 78 percent of Nasdaq 100 returns”

Like a gypsy woman, the next big move could be “the secrets of her dark eyes”. Who knows?

Let’s look at the usual suspects.

Beginning with Nasdaq, or the most crowded index populated with the fewest prime choices, the week ended on new all-time highs. S&P, similarly crowded, also ended well, just shy of the 2018 high 280.41 made in March. The Dow got back over 250—our terror zone.

The Russell 2000, or Granddad of the economic Modern Family, ended lower for the week.

With potential double tops at 170, IWM needs to hold 166.64, last week’s low and the fast moving average. Otherwise, as best measure of the US economy, it could hurt. As you know, IWM has 5 sectors in his family to consult the gypsy’s crystal ball with.

Of those, we see division.

Regional Banks, reflective of the health of community banks and related to rates which fell, is in a warning phase. And, KRE is dangerously close to failing the 200 DMA.