Enjoy the latest update from Jason Wenk, Chief Investment Strategist at FormulaFolios Investments. Brought to you by Feeken Financial Services.
I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, finances should be simple, not complicated.
Market Update
With the market facing a little resistance, and a shortened trading week, most asset classes were flat to down from last week. Broadly speaking, March is shaping up to be a very good month, and has largely erased the losses of January and February.
Lesson to be learned: Never get too upset. And never get too excited. Markets have been flustering some of the smartest people on the planet for many, many years.
FFI Indicators
FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts, I’ll write more about how these indicators are built and why we feel they are important.
In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull/Bear indicator, we want it to be at least 67% bullish. When those two things occur, our research shows market performance is strongest and least volatile.
The Recession Probability Index (RPI) increased slightly in January, signaling a modest slowdown in the US Economy. The Bull/Bear indicator is unchanged this week (100% bearish). Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term (think <18 months).
Weekly Comments
We’re continuing to watch the S&P 500 to see if it can break loose of the downward trend it’s been on for the past 30 weeks or so. It’s still at the top end of the trading range (the parallel red bars in the chart), but definitely needs to break out to the upside before we get really confident that the March rally will be sustained. Below are the last two weeks worth of comments on this, followed by this week’s chart…
2 Weeks Ago
The financial markets continue to battle back early year losses, and are broadly very close to turning positive. This is great news, though we’re not out of the woods just yet.
Per the chart below, we can still see the market is in a downtrend. It’s at the high end of the range, but definitely needs to break out of the red “channel” you can see drawn over the chart.
A definitive breakout would be an S&P 500 move above 2050, and then staying there or higher for a few weeks.
1 Week Ago
Checking back in on the same chart, here’s how last week changed it:
In a nutshell, not much.
The broad markets still are at the top end of what looks like the start to a possible downward trend. Should we get a week or two of additional gains, this would be a solid breakout to the positive, and likely the start of a new bull market. Should the market head lower, and eventually close a week below 1,850, then we’re likely heading into a longer term downtrend.
The only way to know how this plays out is to remain patient, and see what happens over the next couple of weeks. Taking any action while at a market level like this (i.e., getting more aggressive or conservative) is pretty dangerous. Rather, the smart investor remains well balanced and sticks to their long term investment plan.
Current chart
We’ll be keeping a close eye on this trend in the next few weeks, and should a breakout start (good or bad), I’ll be sure to report it here on the blog quickly.
More to come soon. Stay tuned.
Regards,
Jason Wenk
Chief Investment Strategist
