Markets deciding where to go next

Markets are reaching a fork in the road. This comes after the S&P 500 bounced back by more than 17% over the last two months, as the Federal Reserve chairman, Jay Powell, suggested no further interest rate rises this year. The International Monetary Fund, among other bodies, have cautioned on slowing global growth. In the U.S., however, equities seem to have a mind of its own regardless of the economic or geopolitical situation abroad.

It's worth it to remain optimistic with your stocks. The U.S. still has one of the more attractive interest rate policies in the western world. Europe and Japan still have effectively negative interest rate policies, which means any cash saved could be costly. Some savings accounts the U.S., however, are now giving 2%+ on interest. By simply offering a higher interest rate on cash, the U.S. becomes the most attractive place to park cash and therefore invest.

Technically speaking, equity markets in the U.S. look stronger and healthier than markets overseas. It's prudent to remain overweight in U.S. stocks while foreign companies recover from the damaging news of tariff wars and the unknown effect of Brexit (now delayed until June). Historically, the chart pattern of the S&P 500 is similar to but does not match that of the "Head and Shoulders" chart pattern, something indicative of a looming correction. (See below the two comparisons.) Due to its significant dissimilarity, it's prudent to suggest that equities will continue higher over the intermediate term.

Fundamentally, a bear market continues to be unlikely. Due to the low-interest rate policy all over the world, the creation of cash is at an all-time high. This money has to go somewhere and stocks continue to offer the best place to beat inflation.

It's worth a note of caution, that the stock market grinds higher because of the demand for shares rather than the buying-power of the consumer. With over a trillion dollars in share buybacks last year, no wonder stocks continue to move higher with an even stronger dividend distribution.

S&P 500 chart showing strength:

S&P 500 continues to trend higher despite breakdown in December, which was immediately reversed

Bearish technical pattern:

Head & Shoulders pattern often predicts looming market correction

At Eureka Wealth Management, I help identify the potential reward for a certain level of risk by weighing stocks, bonds, and other investments. I also provide financial planning and advice on retirement, insurance, tax & estate strategies. Call for a free initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.

Sources:

Financial Times, 3/17/19, “Investors look to Fed for clarity on bonds while Brexit brings paralysis to UK gilts”