How to Climb the Wall of Worry
The rally’s not dead yet.
Stocks finished the week strong as the Nasdaq Composite and Dow both capped off six straight weeks of gains.
Despite fading into the Friday afternoon session, the Dow Jones Industrial Average posted a small gain on the day as the blue-chip index continues to toy with its flat 200-day moving average.
As I mentioned late last week, the Dow is the first of the major averages to make it back to its 200-day following the sharp fourth-quarter correction. Even with yesterday’s 64-point gain in the bag, the Dow is barely squeaking above this line in the sand. Anything can happen — and all eyes are closely watching how the Dow will react to resistance.
As the furious stock market comeback continues, the wall of worry is getting steeper every day.
Uncertainty is word reporters and pundits love to throw around when discussing the market’s many vulnerabilities. They love to create drama when highlighting potential events that could derail a strong rally.
Of course, nothing is ever certain in the markets. But it certainly feels like the world is lurching toward a disruptive period that could roil the averages. According to one gauge, the chance for economic trouble is hitting new records across the globe.
“The global economic policy uncertainty index is at record high levels at a time of deepening unrest in British politics ahead of the country’s scheduled exit from the EU on March 29, the trade war between the US and China and a government shutdown in the US,” the Financial Times reported in January.
It’s true. As we enter a new trading month, the US and global economic policy uncertainty indices continue to break records:
That’s a startling chart from the FT. By this measure, uncertainty is higher now than we experienced during the 2000-2003 bear market, the bursting of the housing bubble, the depths of the financial crisis, the 2011 eurozone crisis, and Trump’s surprise election win.
In fact, you can clearly see how the uncertainty spikes (can I call them that?) have steadily increased since 2009.
I’m not exactly sure what’s going on here. Did the financial crisis launch us into a new age of political and financial paranoia? Or has the world actually gone mad?
I don’t have a good answer to this question. But if we ask the stock market, life has been pretty good over the past decade. The economy is not the stock market, they say. Economic surprises don’t always lead to downside market surprises, either.
Maybe we just need to relax.
Turning to cryptocurrencies, it’s been more than one year since the epic bitcoin bubble and there’s little sign of life in the crypto markets.
The Paris Fintech Forum was once Europe’s hottest crypto conference.
Not anymore, Bloomberg noted as the conference ended late last week. The 3,000 attendees weren’t as interested in blockchain tech or other crypto-related developments this year. Instead, they “got back to basics” by featuring forums on technology in banking and lending.
“Crypto fever has truly broken,” Bloomberg reports. “With the top 10 crypto assets down 80 percent in the last 12 months and skepticism mounting, many fintech pros concluded that the technology may not be ready for prime time, especially in an industry this heavily regulated.”
In case you’re keeping score at home, bitcoin is trading just above $3,400 this morning. The flagship cryptocurrency is once again sinking back toward its December lows following a brief holiday rally.
Ouch. Maybe the crypto-nerds can still grab a seat on the gold bandwagon before it speeds away…
Speaking of gold, I teased a potential gold trade on Friday…
The resurgent VanEck Vectors Gold Miners ETF (NYSE:GDX) gained almost 7% last week as gold futures soared to a fresh breakout. That erases GDX’s late summer slide as several big-name miners are soaring off their lows.
I have my eyes set on a brand-new gold miner trade. But it’s available only to my Rude Awakening Pro subscribers. Click here to join.
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