SECTOR RANKINGS SHOW MORE OPTIMISM -- ENERGY, TECHNOLOGY, INDUSTRIALS, FINANCIALS, AND MATERIALS LEAD MARKET HIGHER -- ALL WORLD STOCK ISHARES HIT NEW RECORD -- FOREIGN STOCK ISHARES ARE CLOSE TO AN UPSIDE BREAKOUT
SECTOR LEADERS...Chart 1 shows the weekly ranking for the eleven stock market sectors.Nine of them closed up for the week with only two losers. That reflects a generally higher market with major stock indexes nearing new records. The rankings also reflect a generally upbeat mood on the market and, by extension, the economy. Energy (XLE) was the week's top performer and rose on the back of a higher price for crude oil. Energy remains the year's weakest stock sector. This week's buying, however, suggests a more optimistic mood on economically-sensitive energy prices and the global economy. Materials (XLB) were also weekly leaders and were led higher by stocks tied to paper, copper, and steel which are also tied to the global economy. While defensive gold shares lagged behind. Other sector leaders include Technology (XLK), Industrials (XLI), and Financials (XLF). Technology hit a new record as did semiconductors. Financials (along with banks) hit a new high for the year on the back of rising bond yields and a steepening of the yield curve. Industrials were led higher by airlines and rails as part of a strong transportation group. Transports were one of the week's strongest groups which also reflects more optimism on the stock market and the U.S. economy.
WEAKER SECTORS...Weekly laggards include real estate, consumer discretionary, communications, healthcare, utilities, and staples. Real estate, the week's biggest loser, and was hurt by rising bond yields (as were utilities and staples). Consumer discretionary stocks were pulled lower by Nike (-5%), McDonalds (-6%), and Hasbro (-21%). With that notable exception, the rankings suggest a more optimistic market mood and a preference for more economically-sensitive stock groups.
ALL WORLD STOCK ISHARES HIT NEW RECORD...While we've all been watching major U.S. stock indexes challenge their old highs, we can't ignore recent strong action in global stock indexes. They also paint a more optimistic picture. The weekly bars in Chart 2 show the MSCI All World Stock iShares (ACWI) ending the week above its previous highs hit this summer and at the start of 2018. That's a very good sign for everyone. The ACWI, however, is heavily influenced by U.S. stocks which are the strongest in the world. A better gauge of how the rest of the world looks is shown in Chart 3. And it's also encouraging.
WORLD EX US ISHARES MAY ALSO BE CLOSE TO BREAKING OUT...Foreign shares have been much weaker than the U.S. over the last two years, and remain so. Their direction, however, still plays an important role in the direction of the global stock market, which includes the U.S. And they may be about to flash a bullish signal of their own. The weekly bars in Chart 3 show the MSCI All Country World ex US iShares (ACWX) in the process of testing their July intra-day peak at 47.38. A decisive close above that chart barrier would put the foreign stock index at the highest level in more than a year, and would signal the start of a new uptrend. That would also be a positive signal for U.S. stocks which usually do better when they're supported by rising foreign shares. A couple of larger foreign stock markets have already broken out to the upside. And the biggest emerging market may be bottoming.
JAPANESE AND GERMAN STOCK INDEXES ARE ALREADY IN UPTRENDS...An even more encouraging picture is gotten from two of the world's biggest developed stock markets.The weekly bars in Chart 4 show the Japanese Nikkei 225 Index having recently broken out to a new 52-week high. That's also an encouraging sign for the Japanese economy which is the third biggest in the world. The weekly bars in Chart 5 show the German DAX Index having recently broken out to the highest level in fifteen months. That's also a good sign for the German economy which is the biggest in Europe and the fourth largest in the world. Those two stronger stock markets also suggest that the global economy may not be as weak as feared. Which leads us to the biggest emerging market in the world which has been at the center of the trade war with the U.S. which has posed the biggest obstacle to global growth.
CHINESE STOCKS MAY BE BOTTOMING...The Chinese stock market is still one of the weakest in the world. But it's looking stronger.The weekly bars in Chart 6 show the Shanghai Stock Index rising sharply at the start of 2019 to reach the highest level in more than a year and ending its 2018 downtrend. After retracing nearly two-thirds of those gains between April and July, it appears to be making a second attempt at forming a bottom. Its blue 10-week average that crossed above its red 40-week average seven months ago (blue circle) remains in that positive alignment. A close above its summer highs near 3050 (see flat trendline) would constitute a bullish breakout and increase the odds that a bottom has been seen. It already has a positive pattern of two rising bottoms formed between January and August (see rising trendline). China is not only the biggest emerging market in the world, but is also the world's second biggest economy. What happens there effects what happens here and everywhere else.
