Month: August 2021

(photo by Hello I’m Nik on Unsplash)

Here is a graph that reflects the stock performance of the four major indexes over the past TEN years (per TD Ameritrade website).

Orange: Nasdaq (technology & other) increase of ~475%

Blue: S&P500 (80% of market) increase of ~250%

Purple: Russell (small caps) increase of ~200%

Aqua: Dow Jones (30 Belweathers) increase of ~200%

Notice that since the initial pandemic drop during 2019, the Nasdaq (orange) has gone up around 275% in about two years. Amazing!

This past Friday, August 6, 2021, the S&P500 closed at an all-time high after the monthly jobs report came in better than expected, as the economy continues to recover from the Covid-19 pandemic, and investors shake off delta variant concerns (per TD Ameritrade website).

And per Sven Henrich’s twitter feed (@NorthmanTrader): S&P500 “new highs on Friday with only 45 components making new highs.”

The market indexes can be broken down into eleven sectors. While the INDEXES provide a general view of the market, the SECTORS provide guidance regarding how specific segments of the market are performing.

Here is a chart reflecting the most recent ONE YEAR performance of all eleven sectors against the S&P500 (per TD Ameritrade website). All sectors are in the green!

The following chart shows sector performance over the LAST MONTH timeframe (per TD Ameritrade website).

Financials and IT have led the way in both timeframes. On the plus side, Health Care and Communication Services have moved up. On the negative side, Consumer Discretionary and Energy have slid down to the bottom.

Within each SECTOR there are INDUSTRIES. We have identified the Consumer Discretionary SECTOR as the poorest performer over the past month. Which INDUSTRIES are driving this downtrend? The chart below lists all INDUSTRIES within the Consumer Discretionary SECTOR.

While one month is not a listed timeframe in the chart below, we can still use it as an illustration. The Diversified Consumer Services INDUSTRY is the only industry that has been down over the past three years. And the Internet & Direct Marketing Retail INDUSTRY has been down over the past year. Also, scanning the “YTD” and “1 Year” columns, it looks like all INDUSTRIES have seen a slowdown (per TD Ameritrade website).

Let’s focus on the Internet & Direct Marketing Retail INDUSTRY from the chart above. The chart BELOW reflects some of the specific companies that make up the Internet & Direct Marketing Retail Industry. On top of the list is Amazon (AMZN) (per TD Ameritrade website).

Here is an AMZN 30-Day Chart broken down in one-hour increments (per tastyworks trading platform).

Notice the big down gap around July 29. That is when AMZN reported earnings for the most recent quarter. They did not meet street estimates, which caused the stock to drop about 250 points. And since then (one week in) the stock has remained flat. I would venture to guess that this big drop in AMZN is one of the main drivers for the Internet & Direct Marketing Retail INDUSTRY and Consumer Discretionary SECTOR decrease (over the past month), as AMZN is, by far, the biggest company in this Sector-Industry.

To conclude, money is constantly flowing in and out of the sectors and sub-industries. Recognizing these shifts can be helpful in assessing where to invest your own money next.

(photo by Aidan Hancock on Unsplash)

I have already stated in previous posts, my view is the stock market is overpriced and I’m waiting for a stock market pull-back. However, I want to be clear that I am in the minority. There are very few bears left in this bull market.

Individual investors continue to “buy the dip” after the rare small drops in the market. The Federal Reserve continues to pour money into the market, feeling the need to help hold the market up, even while stating over-and-over that the economy is in great shape. And frankly, there is no where else to invest money at this time. With extremely low interest rates from savings accounts, CDs, and bonds, interest income can be found no where. It makes sense that the professional trading firms continue to invest their client’s money in the market.

Had I stuck to the mantra, “the trend is your friend”, I’d be in better shape. We have been in a bull market for years now, with an additional massive surge to the upside during the pandemic. Many professional traders recommend trading what’s in front of you, not what you think will happen. And that advice has held up well.

Perhaps I’m a little skittish at these high levels because I lived through the tech bubble of 1999-2000 that started with soaring tech names and ended with a huge drop. There is a saying that the market goes up like an escalator (slow and steady), and down like an elevator (fast and hard). However, during the 1999-2000 technology stock bubble and other times, like last year, it felt like the opposite, with a massive elevator up.

I just saw a twitter post this morning by Carl Quintanilla (CNBC, NBC) quoting Goldman Sachs, the big investment bank: “We raise our S&P 500 year-end 2021 price target to 4700 (from 4300) and our 2022 target to 4900 (from 4600). The combination of higher-than-expected S&P 500 earnings and lower-than-expected interest rates drive our upgraded price targets…” [Kostin]

Many companies that have reported earnings for the most recent quarter have reflected fantastic financial results. I would argue that these great earnings reports are already factored into the market. Tech companies like Apple reported an all-time great latest quarterly earnings, yet their stock dipped with news that they foresee a slowdown next quarter due to the Covid variant picking up steam. On the other hand, Amazon had less than stellar numbers, which saw their stock price drop.

There are also plenty of companies that have seen their stock prices come down. While the overall market indexes (S&P, Nasdaq, Dow) continue to flirt with all-time highs, the reality is that all companies are not created equal in these market indexes. Big tech companies, for example, are weighted more heavily in these indexes than smaller companies. In effect, for most of this year, big name tech stocks (and others) have been carrying the S&P and Nasdaq indexes, even though many other company stock prices are down.

The Russell index which represents smaller companies is one index that has been in a downtrend recently. To quote an email I received this morning from tastytrade: “With all the attention given to the rallies in SPY, QQQ, and even DIA, it may be surprising to know that IWM is the same price it was six months ago. On Feb 4, IWM closed at 218.62. Yesterday, it closed at 218.11.

What am I doing in my own portfolio? First, I have cash on hand to buy stocks after a pull-back occurs (whenever that will be). Second, when I uncover a stock that looks like a good entry point for a long position based on chart technicals, I’m in the trade short-term. Either the stock goes up and I close out for a profit, or I close the trade for a small loss. Third, and the majority of my strategies, I utilize stock options (not for all investors) to enter mostly short positions.

To conclude, the stock market is at all-time highs and continues it’s upward trend, even today. No one knows which way the market will go in the future. It may continue up for a while. However, based on the economic data that I see, I am taking a contrarian stance.

(photo by Kelly Sikkema on Unsplash)

Here are nine personal finance ideas…

When possible, pay bills by credit card to earn credit card points. Be careful though, as some vendors may charge an extra fee when paying by credit card. Ensure that you have enough cash on hand to cover your charge, and pay your credit card bill in full each month. It’s been my experience that it takes a lot of spending to earn enough points to buy things for free. Only use credit card for necessary purchases. It has still been worth it for me. I earned enough points for a beginner $200 electric guitar and amp that has lasted for several years. I’ve ordered books here and there for $20 credits. And occasionally, I have enough points to pay a small portion of an Amazon bill with credits. Small payoffs yes, but still free money if you use your charge card in a healthy way.

Periodically call your credit card company to request an increase in your credit limit. As a valued customer who pays your credit card bill on time each month, the credit card company may approve your request. It’s always good to have additional credit on hand for emergency purposes. I have not had the need for this extra credit yet, and hopefully never will. If an emergency did occur, I would probably use my emergency cash fund first, so not to incur unnecessary interest charges. However, if I ever had a big life emergency, it’s good to know that I’ve got this extra amount available to me.

Periodically check your credit score. The higher the score, the more benefits to you, such as: lower interest rates offered on loans, access to better credit cards, insurance discounts, more housing options, etc. You are entitled to one free copy of your credit score every twelve months from each of the three nationwide credit reporting companies (Equifax, Experian, TransUnion). You will need to share your name, address, social security number, and date of birth to verify your identity. Some credit card companies offer free credit score lookups too.

Reconcile bank and credit card statements on a monthly basis. It is helpful to know how much money is available to you in your accounts each month. However, another important reason to stay on top of this is to ensure that no fraudulent transactions have been posted to your accounts. If, for example, someone illegally used your credit card to make purchases, you have a limited timeframe to contact your credit card company to file a complaint and to receive a credit back onto your card.

Contribute to your employer’s retirement plan, especially if they offer an employer match up to a certain percent. At a minimum, contribute enough to earn the full employer match. This is free money to you for retirement.

Spend less than you earn. Live below your means. It sounds easy but is not. Create a budget that lists out all income sources minus all expense items. Track expenses and assess if they are truly needed. Cut expenses when possible. Brainstorm ways to bring in extra income.

Pay yourself first. Put money aside before paying bills. If in debt, pay off first. Then build an emergency fund. And then save, save, save.

Invest your savings wisely. It’s difficult in the current economic environment to find investments that earn income at a higher rate than inflation. Interest on savings accounts, CDs, and bonds are non-existent. And the stock market is at all time highs. No one really knows which direction the stock market will go. It can certainly keep going up from here. Personally, I’m waiting for a drop before I invest. But I’ve been wrong in my assumption for quite some time, so what do I know. Corrections in the market are healthy. The stock market has not had a 10% correction since Feb 2018. “According to data from market analytics firm Yardeni Research, the S&P500 has undergone 38 corrections since the beginning of 1950. That’s an average decline of at least 10% every 1.87 years.” So it’s tough right now to decide how best to save. Everyone has different levels of risk. Determine your risk profile. Holding cash for a bit before making a decision is an option for sure.

Invest in yourself. You are your most valued asset. Grow your knowledge in topics that inspire you. Spend money on activities that lift up your spirit.