September 2017 Market Commentary

Usually we expect to see September/October as more volatile than the rest of the year, with a slightly negative bias.  But not this year!  This year, in many ways, has turned out to be something completely different than what was expected.  Even with sprinklings of global unrest, stock markets all over the world don’t seem to care.  Now, that being said, we still have October to get through before the generally more positive holiday season is upon us.  But for now, we’ll just enjoy this low-stress environment and be ready for whatever is next.

 

Those that know us well, know that we are big followers of market trends and what we perceive to lie beneath them.  Usually that is in the form of an Advance-Decline line or a study of new highs vs new lows.  But this month, since we’ve been on a bit of a McClellan kick, we’re going to take a look at the McClellan Summation Index (basically a modified version of an Advance-Decline line).  Based on the current data on the Summation Index, the market is showing a positive bias when overlaid with a 21-day moving average.  In other words, when the black line is above the red line, the market trend is up, indicating that lower-stress environment.

 

One Year Chart of the McClellan Summation Index (Stockcharts.com)

 

A shift to Value – so far this year, the place to be has been Large Cap Growth (which I feel like we’ve been harping on all year).  However, just this week, we believe that might be shifting back to Value.  To us, it would make sense to see the lagging sectors of the market finally start to play catch-up.  That would largely include Financials and Energy.  Energy has been the biggest lag on the overall markets by being down -9.55% YTD as of September 20th, 2017 (return of the iShares Energy ETF:  XLE).  (FastTrack Data)

 

Still waiting for guidance on tax cuts.  The sentiment from larger Wall Street firms we’re seeing on CNBC seem to favor some sort of corporate tax program that would be pro-business.  Even Jeremy Seigel, from the Wharton School of Business, says “I would say corporate tax reform could add another 10 percent to the market even this year” (see the full article at CNBC.com).   Goldman Sachs has also come out with similar guidance based on the potential data.  At this point it is hard to say what exactly may happen, but given all the negative news we’ve seen this year, this is something to be positive about.

 

International markets remain strong, slightly stronger than the S&P 500 by our measure.  As we’ve mentioned in previous newsletters, it’s been years since we’ve seen that.  We hope it can be another trend we can follow for many months into the future.