Market Commentary – March 2017
So far, March 1st was the date of the stock market peak this year. We went from a market which seemed unstoppable, to a market quickly running out of steam. Generally, we believe a pause in a run-up is healthy, and allows for continued movement upwards – like an athlete taking a break while biking uphill. However, there are a few new headwinds we’re keeping a close eye on.
Market Breadth – one of our favorite charts to stay on top of the market’s “health” is the Advance-Decline line of the NYSE (New York Stock Exchange). It provides a summary of the number of stocks going up vs the number of stocks going down on the Exchange. This shows accumulation (or dispersion) of buyers and sellers. The chart below shows that since the election in November, more stocks have been going up than down. That is, until around March 1st, when they seemed to have reached a peak. If the daily value of the Advance-Decline line can stay above a mid-term (in this case the 55 day Moving Average), then we’d consider the market “healthy” and poised to continue. A drop below, suggests caution.
US Stocks – the story so far this year has been positive overall for US stocks (see red line in chart below). However, it depends on what part of the market you are looking at. US Large caps have been reasonably strong – especially if you, like us, have been on the Growth (blue line) side (as opposed to the Value side). Small Cap stocks haven’t done nearly as well (green line). And if you’ve been in the Energy sector, then you’ve lost ground so far this year (pink line).
Bonds – We’ve seen an interesting, and surprisingly positive, shift in the bond market since the Federal Reserve raised interest rates by 0.25% on March 15th. Going into that announcement, bond prices in general were slowly moving down. Once the rate hike was official, however, bond prices quickly recovered. This is not what we would generally expect. A rising interest rate environment can be bad for bond prices – while the yield goes up, prices come down (like a see-saw). We continue to monitor this conundrum closely.
In summary – we’re still positioned more aggressively now than we have been in a long while, but we are growing more cautious as the NYSE Advance-Decline line appears to be weakening as well as the possibility that the post-election optimism is slowing. These are data points we review every day, so stay tuned…