August 8, 2016, 3:45pm EST
Today we want to look at some key charts as we head into the week.
First, to step back a bit, as we started last week, we had some big market events ahead of us. Japan was due to approve a big fiscal stimulus plan. The Bank of England was meeting on rates and the U.S. jobs report was on the docket to wrap up the first week of August.
As we discussed Thursday, the BOE announced they’ve returned to the QE game. Japan doubled the size of its stock buying plan. And the jobs report came in Friday with another solid report. As we thought, despite the volatility in the monthly numbers the media likes to overanalyze, the longer term trend continues to clearly argue the health of the job market is in good shape, and not a legitimate concern for the Fed’s rate path.
All together, the events of the week only solidified reasons to be long stocks.
Most importantly, stocks have been, and continue to be, a key tool for central bankers in this global economic recovery. They want and need stocks higher. A higher stock market provides fuel for economic activity by underpinning confidence and wealth creation, which encourages hiring, spending and more investment.
With that, as we’ve said, this is the sweet spot for stocks, where good news is good news for stocks (better outlook triggers capital flows out of cash and bonds, and into stocks), and bad news is good news for stocks (it triggers more stimulus).
When it comes to stocks, back on May 25th, we said “everyone could benefit by having a healthy dose of ‘fear of missing out.’ Stock returns tend to be lumpy over the long run. When we you wait to buy strength, you miss out on A LOT of the punch that contributes to the long run return for stocks.”
Fast forward to today, and the S&P 500 has printed yet another new record high.
But the horse is not already out of the barn on global stocks (including U.S. stocks).
Let’s take a look at the chart on the S&P 500…
Sources: Billionaire’s Portfolio, Reuters
You can see, we’ve broken out in U.S. stocks (very bullish).
Next, in the UK, the place people were most afraid of, just a little more than a month ago, traded near 14-month highs today and is nearing a breakout to record highs, with support of fresh central bank easing from the Bank of England.
Sources: Billionaire’s Portfolio, Reuters
In the next two charts, we can see the opportunities to buy the laggards, in areas that have been beaten down on broader global economic concerns, but also benefiting directly from domestic central bank easing.
In the chart below, you can see German stocks have fallen hard from the highs of last year, but have technically broken the corrective downtrend. A return to the April highs of last year would be a 19% return for current levels.
Sources: Billionaire’s Portfolio, Reuters
In the next chart, Japanese stocks also look like a break of this corrective downtrend is upon us. A return to the highs of last year would be a 25% run for the Nikkei. As we discussed last week, the sharp ascent in the chart below from the lower left corner of the chart can be attributed to the BOJ’s QE program, which first included a 1 trillion yen stock buying program and was later tripled to three trillion (a driver of the run from around 15k to 21k in the index). Last week, that stock buying program was doubled to six trillion yen.
Sources: Billionaire’s Portfolio, Reuters
Given the trajectory of the charts above (global stocks), which both promote and reflect global confidence, and the given lack of consequence that QE has had on meaningful inflation, the world’s inflation-fear hedge, gold, looks like its run into brick wall up here.
Sources: Billionaire’s Portfolio, Reuters
Remember, we have a convergence of fresh monetary policy in the world this year, with fiscal policy in Japan, and the growing appetite for fiscal policy in other key economies. That’s powerful fuel for global economic growth, risk appetite and stocks.
This is the perfect time to join us in our Billionaire’s Portfolio, where we follow the lead of the best billionaire investors in the world. You can join us here.