Caution, Investors are Chasing Stocks, more Tactical than Fundamental

Caution, Investors are Chasing Stocks, more Tactical than Fundamental

Caution, Investors are Chasing Stocks, more Tactical than Fundamental


Investors are no longer running from the stock market they are chasing it for reasons that are more tactical than fundamental: Caution.

It is too early to tell where the UK’s new position in the overall context of the EU will be after the nation leaves the currency bloc.

The big Q: Does this mean that long-term investors would be wise to be complacent about the consequences of the historic event?

The Big Q: I do not think so.

The Bank of England Mark Carney said: “The result of the referendum is clear. Its full implications for the economy are not. The UK can handle change … the decision to leave the European Union marks a major regime shift … In the coming years, the UK will redefine its openness to the movement of goods, services, people and capital. In tandem, a potentially broad range of regulations might change. Uncertainty over the pace, breadth and scale of these changes could weigh on our economic prospects for some time.”

Mr. Carney also said: “The economic outlook has deteriorated and some monetary policy easing will likely be required over the summer … one uncomfortable truth is that there are limits to what the Bank of England can do … through financial market and confidence channels, there are also risks of adverse spillovers to the global economy.”

Notably, The Institute for International Finance (IIF), a Washington, DC-based organization that represents more than 500 of the world’s largest private banks, insurers, and hedge funds, now expects UK growth to contract from here on and that should result in an overall 1.2% growth rate for Y 2016 while growth should contract by 0.2% in 2017. The IFF also comments that the most important negative effect for the UK will be through the disruption of private investment plans, not least a start to relocation away from the UK in anticipation of years of uncertainty about the relationship with the EU.

ECB President Mario Draghi from his side told EU leaders that Eurozone growth might fall 0.5% over 3 years because of Brexit.

Interestingly, St. Louis Fed President James Bullard explained in a prepared speech why an important change in the characterization of the US macroeconomic and monetary policy outlook is needed and whereby the forecasting model should deliver a “simple” forecast of Key macroeconomic variables in the current regime in the U.S. and which is likely to persist over the next 2.5 years where he expects:

  1. Real output growth of 2%,
  2. Unemployment rate of 4.7%,
  3. Trimmed-mean PCE (personal consumption expenditures) inflation rate of 2% is expected.
  4. Interest rates in the US could stay lower longer than was until now was expected.

As investors hunt for yield in the US, that hunt should go unabated into the future. This quest will cause serious long-term investment decision errors simply because that this extremely low interest rate environment will not be considered as normal forever.

Friday, US major stock market indexes finished at: DJIA +18.28 at 17948.27, NAS Comp +19.89 at 4862.57, S&P 500 +4.07 at 2102.93

Volume: trade was light with about 831-M/shares exchanged on the NYSE.

  • DJIA +3.0% YTD
  • S&P 500 +2.9% YTD
  • Russell 2000 +1.8% YTD
  • NAS Comp -2.9% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.26) Bullish (0.30) Neutral (0.23) Bullish (0.25)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.26) Bullish (0.30) Neutral (0.23) Bullish (0.25)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (0.00) Neutral (-0.21) Neutral (0.17) Neutral (0.06)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.25) Neutral (-0.10) Bearish (-0.40) Bearish (-0.25)

Have a terrific 4th of July Holiday weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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