Market Direction Week of June 12, 2017©

Market Direction: BULLISH alert issued 11/10/2016

Last Week Review: U.S. large-cap stocks were mixed, while small-cap stocks rose by more than 1% in a week where divergences in sector performance and political news, both domestically and internationally, drove market sentiment. Helping small-cap stocks' relative performance, compared with their large-cap counterparts, was both their greater exposure to the financial services sector, which outperformed as long-term Treasury yields rose, and their relatively small exposure to the technology sector, which lagged. Small-cap stocks recorded most of their outperformance following the testimony of former FBI Director James Comey Thursday morning, and they continued their rally even after the United Kingdom's general election results showed that Theresa May's party fell short of gaining the majority in Britain's Parliament.

Policy uncertainties occupy a sizable portion of our list of current market risks, highlighted last week as hearings on Capitol Hill related to the Trump administration and the U.K. election held investors' attention. Political drama quite often drives adverse knee-jerk reactions in the market as uncertainty obscures the broader view.

More recently, in spite of no shortage of political theatrics (French elections, North Korean missile tests, et. al), the market has demonstrated a bit more serenity, as evidenced by the VIX index (a measure of market volatility) reaching a 24-year low in May.

In 1960, the earnings yield (corporate earnings divided by the stock market index price) was 5.8%, compared to 10-year interest rates of 4.7%. By 1982, rates had risen to 15% versus an earnings yield for stocks of 13%. Today, this ratio is still higher in favor of stocks, as bond yields remain low (due to central bank stimulus and low inflation) while corporate earnings are on the rise.

How the market finished last week, the S&P 500 down 0.3%, the Nasdaq down 1.6%, and the Dow up 0.3%.

This Week: The shock of the election will dominate the weekend, but the attention now shifts to investors looking forward to the Federal Reserve's (Fed) next interest rate announcement, in which it is expected to raise short-term interest rates Wednesday afternoon. Also on the calendar this week are meetings of the Bank of England (BoE) and the Bank of Japan (BoJ), while UK CPI and unemployment data will also be in the frame.

Sector rotation is hitting the technology sector, but it appears that the severity of the sell-off in the NASDAQ is affecting the other indices. Although the NASDAQ has had similar sell-offs in the year, this one was unprovoked and it took place after the index hit fresh all-time highs. These types of hard reversals can be take time to work through so I’m definitely taking a cautious stance, especially since it appears to be affecting the sentiment on the overall market.

Economic Calendar: FOMC Meeting Begins (6/13), Consumer Price Index (6/14), Retail Sales (6/14), FOMC Announcement (6/14), Consumer Sentiment (6/16)

Some of the major earnings announcements on deck: KR, ADBE, FDX, RHT, ORCL.

$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, write us. Share with a friend. Cha-ching.

Related Link: http://www.stockmarket-direction.com/