As we break into 2015 all appears well. Retail and housing sectors look to be pushing upwards into new high territory- a major indication that Main St. is well. But there’s one sector that should NOT be doing so well if everything is hunky dory. Could this be a warning…?
Something to bear in mind is that the big fund managers on Wall Street (your pension money) can’t really switch to a cash position; they have to pretty much always be invested in something.
So if you’re one of these guys and you see trouble ahead, what do you do?
Well, you could buy some downside protection, but that has its own set of problems. So what most of them do if they see trouble is they switch to more defensive stocks such as consumer staples (food, tobacco, etc) or utilities (power companies), the thinking being that even in rough times people will have to buy those things.
So whilst housing and retail stocks are looking better, what’s disturbing me is that consumer staples and utilities are looking a lot peppier (curvy blue line is the long term average price):
Top chart is utilities and one below it is consumer staples. Utilities should be a dull and steady kind of chart, but this one looks more like tech or biotech stocks, pushing towards bubble territory. Something doesn’t feel right about that.
Just to give you the comparison, here is that chart of biotech stocks sector:
But there’s one thing that keeps me thinking this bull market will keep going a bit longer apart from the stubborn uptrend it’s in, and it’s something I’ve mentioned before…
Bull markets typically end with a euphoric phase, when everyone is over-optimistic. And we’re not at that level yet. In fact, most people may be only just starting to believe in this market.
The market itself will give us the clues as she goes, but my best guess for 2015 is that she keeps pushing higher but with more violent corrections along the way as Wall Street uses this as an opportunity to take their profits at Main Street’s expense. Anything can happen, but at this time it’s hard to envisage a protracted bear market appearing this year- maybe next. Which is fine by me- a nasty bear market in election year 2016 will be just what we need to finally turn voters sour on this quasi-socialist administration.
Best
Jim.
The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com
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