After the October correction in stocks, you’d think the US was on the verge of collapse.
That’s how some of the headlines report it.
When it comes to investing, sometimes you have to take a few deep breaths and reassess.
We are all constantly bombarded with the news of the day.
Tumbling stocks, trade wars, rising interest rates, government debts, a dysfunctional Whitehouse, or whatever else sells the papers.
And much of it misleads you.
Note how markets never correct, they ‘tank, plunge or nose dive’.
Remember that newspapers are sold on emotional headlines.
So you need to find a way to turn down that noise.
Are markets set to collapse? Is a US recession imminent?
I’m not so sure about that, as some of the bears are.
If you want a verdict on the US economy, perhaps you should ask the consumer.
Black Friday online sales broke records this year.
A record $US 6.22 billion was spent online by the end of Black Friday. That’s an increase of 23% over last year.
It was a record-breaking shopping weekend.
On the US economy, it seems the consumer is voting with their feet.
Not a lot of belt tightening going on there.
Now, any market correction can be the beginning of a long bear market.
So you do need to exercise some caution.
But note, the stock market is not quite the economy.
So look at the fundamentals.
Think jobs, manufacturing data and corporate earnings.
How are they holding up?
US unemployment is the lowest it’s been in almost 50 years.
This is hampering US manufacturing, because there aren’t enough workers to fill jobs.
US manufacturing is also being hurt by US protectionist trade policy, making raw materials pricier. The strong US dollar is also hurting by making exports more expensive.
But despite those headwinds, the latest data shows US manufacturing continues to expand. New order growth just accelerated to a five-month high and job creation to a ten-month high.
Factory payroll numbers saw their largest monthly increase in over seven years, as firms struggle to meet rising workloads.
But what about corporate earnings?
I wrote about this a couple of weeks ago, but not all the data was in. We now have 96% of the companies in the S&P 500 who have reported results, for the third quarter.
And what do we find?
To date, 78% of S&P 500 companies have beat earnings estimates.
Get this, earnings growth for the combined S&P 500 firms is tracking at 25.9% for the quarter. To see earnings growth that good, you have to go all the way back to 2010.
Those sorts of figures can’t be dismissed by the bears out of hand.
Now, I’m not suggesting markets will rocket up from here.
All I do suggest, is to keep a balanced view.
The Black Friday sales have just set a record
Unemployment is at 50-year lows, US manufacturing is still powering along despite headwinds, and corporate earnings are the strongest they’ve been all decade.
Is this the time to be panicking?
I’ll let you be the judge.
Now could be a time to build your watch list and watch the market closely.
That’s because any market correction can drag down good stocks with it. Firms that continue to have strong earnings.
There might be opportunities in the market right now, should the market continue up from here.
So, where is the market headed? Up, down or otherwise?
You don’t need to form an opinion on this.
Follow the weight of money.
You don’t need to read all the analysis. In fact, that will only mislead you.
Look to the market to give you those reference points.
The major benchmark averages like the Dow and S&P 500 are still holding that October low. The Nasdaq Composite went briefly below the October low, but it closed reasonably strong.
My view on all this hasn’t changed.
A key level to watch is that February low. Whilst that low holds, you can’t call a market collapse with any confidence.
The other level to watch would be the minor high on 7-8 November. Any break above that high would be bullish for markets.
Let the market guide you and follow the weight of money.
Remember that stock market corrections are normal.
And can be opportunities to add strongly trending stocks to your portfolio.
If you want to learn a little bit more about which stocks are in a strong position right now, then go here to find out more.
Chartist, Phil Anderson’s Time Trader