Your Capital Wave Forecast for this week is “more of the same.”
That means the trend is still up and stocks want to keep going up.
And, they’re going to, unless the shadow of the coronavirus darkens the global outlook a lot more than it has.
What Happened Last Week
The major market benchmarks hit all-time highs again last week (Friday’s selloff notwithstanding).
Despite the Dow losing 277 points – 0.94% – on Friday, the Industrials were up 3% on the week. The S&P 500 lost 0.54% Friday but was up 3.2% on the week. And the Nasdaq Composite, after shaving 0.54% off on Friday, its run still ended up a whopping 4% for the week.
Maybe Friday’s selloff was a little profit-taking ahead of the weekend and the growing numbers, worldwide, of infected coronavirus human beings (because “you know” they’re human beings, not just statistics).
With the death toll from the virus now worse than the SARS epidemic and still growing, markets might start to feel the human impact. Not that it has bothered markets, but if the human toll spills over into an earnings hit, then, maybe, there will be more profit-taking.
The selloff on Friday could also have been from better-than-expected jobs numbers.
With 225,000 jobs filled in January, maybe investors were thinking the Fed, which said last week they were watching the coronavirus’s effects (meaning they’d lower rates if they have to), would be less inclined to cut rates, probably hold them steady as economic numbers continue to chug along or, heaven forbid, raise rates if the economy’s growth leads to any meaningful inflation expectations down the road.
But, those “negatives” aren’t what’s holding the market back. The fact is, nothing’s holding the market back – at least nothing last week.
That’s because there’s more and more money rushing into passive investing index products. And as that money gets allocated and the stocks underlying the indexes they’re buying, especially the big-cap stocks that are so heavily weighted and getting heavier every day, get bought up, the markets will keep going up.
The Five Companies That Could Jump in the Weeks Ahead
And, speaking of five big tech stocks, Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL), and Intel Corp. (INTC), alone account for 55% on the market’s gains year to date. Tech stocks, in general, are up 9% year to date.
It’s another tech rally.
And since active managers have been sucking wind, and only 37% of them have even kept pace with the market’s crazy returns this year so far, they’re going to have to play catch up.
And guess what?
They’re going to have to buy all the roaring tech stocks.
That’s what’s driving the markets higher.
And it’s going to continue. Until, that is, something ugly, like the coronavirus, which is real folks, wakes up investors to what havoc it possesses.
So, stay calm and carry on.
Just don’t forget: it’s always good…until it isn’t.