The 1-Minute Market Report – September 23, 2019

What happened last week.

What we’re watching for next week.

The Stock Market

The good news is that we are just 1.1% away from making a new high in the market. The bad news is that the bulls have tried and failed to break through the old high (3,025), 8 times in the last 60 days. 5 times in August and 3 more times in September.

Don’t worry. They can do it. And they will, I guaranty it. I just don’t know when. Chart 1 illustrates the many attempts to break through the ceiling.

Chart 1. Market action last 90 days

The 1-Minute Market Report - September 23, 2019

The Economy

The economic numbers have been coming in better than expected lately. We’re not out of the woods yet, but the positive reports are encouraging. Interest rates and inflation are low, unemployment is nearing a 50-year low, consumers are beginning to open their wallets, and even the housing market perked up a little recently.

It sure feels like a Goldilocks situation, but we have to be vigilant about the inevitable arrival of the Big Bad Wolf. We can’t stop what’s coming, but it looks like we have been granted a little more time.

Geopolitics

There is a glimmer of hope, thanks to some positive developments recently. The U.S.-China trade war appears to be calming down a bit. But Sabre-rattling between U.S. and Iran continues. North Korea is still test-launching missiles and working on their nuclear warhead program.

Afghanistan is devolving into a Taliban killing field. Prime Minister Boris Johnson got his knuckles whacked by the U.K. Parliament. And the drone strikes that took out some key Saudi oil facilities rattled the markets for a few days. Now things seem to be settling down a little. Let’s just hope the Saudis don’t decide to retaliate in a big way.

The Factor Zoo

Next up is a quick review of leading and lagging factor and sector ETFs. The purpose of this section is to give you a sense of where the big money is going, what’s working, and what’s not. Make of it what you can, and I’ll offer some observations after the chart.

Chart 2. The top and bottom factor and sector ETFs year-to-date

The 1-Minute Market Report - September 23, 2019

Technology is still #1 even though it’s been beaten up lately.

Gold miners are #2. Gold has been on a tear, up 32% in the last 12 months. Silver is up even more.

Momentum is #3 even though it has also suffered a pullback recently.

Big Cap Tech is #4 which shouldn’t surprise anyone, given the dominance of tech in general.

Consumer Discretionary is #5. As I said earlier, consumers are beginning to open their wallets again.

I won’t go through the laggards. You can do that yourself.

Charts 3 & 4. S&P 500 with Key Markers

The left chart shows the return for the S&P over 4 time frames. The right chart shows how far the market is from 4 key markers. The purpose is to give you a sense of how the market is performing from several different perspectives.

The 1-Minute Market Report - September 23, 2019

Chart 5. S&P 500 from ’07 to Present with Corrections

This is the first time I’m showing this chart. The purpose is to give you some perspective on what the market has done since the last bull market top in October 2007. Recall that the market dropped by 57% from ’07 to ’09. But the recovery since the bottom has not been as smooth as most investors think.

There have been 5 significant pullbacks along the way, and the average annual return since the top in October 2007 has been a meager 5.7%. And that’s before taking inflation, taxes, and costs into account.

My larger point here is that major bear markets like ’07-’09 cause more damage than many people realize. Long-lasting damage. And many lost years waiting to get back to even again.

The 1-Minute Market Report - September 23, 2019

Final Thoughts

When the market finally tops out this time, you can expect another painful episode. That’s why I focus so much of my time and energy on playing smart defense.

Sure, you can just ride out the next bear if you choose. But at what cost to achieving your long-term objectives? Do you have 5 years to throw away? Or 14 years, or 22 years, or 29 years as we’ve experienced in the past?

Think about it.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.