Stocks Outlook - Monday, July 16

The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

1. Why the stock market’s short-term bearish seasonality might not be as bearish as you think.
2. Freight Transportation Services Index is trending higher. A medium-long term bullish sign for the stock market.
3. The stock market will probably rally a few more quarters because Compensation of Employees + Private Nonresidential Fixed Investment has yet to surge.

1 am: Why the stock market’s short-term bearish seasonality might not be as bearish as you think.

Since March 2018, the S&P 500 has had a tendency to go up in the first half of the month and down in the second half of the month.

While this is a short-term bearish factor for the stock market, I wouldn’t pay any attention to it. These sort of short-term “seasonality” factors can break at any time.

There is no consistent seasonality stating that the first half of each month is bullish and the second half is bearish.

1 am: Freight Transportation Services Index is trending higher. A medium-long term bullish sign for the stock market.

The Freight Transportation Services Index measures the volume of the movement of freight in the U.S. This indicator tends to flatten or fall before an equities bear market or economic recession begins.

The latest reading for the Freight Transportation Services Index made a new high. This suggests that the bull market in U.S. stocks will continue.

1 am: The stock market will probably rally a few more quarters because Compensation of Employees + Private Nonresidential Fixed Investment has yet to surge.

Compensation of Employees + Private Nonresidential Fixed Investment tends to surge for a few quarters before bull markets and economic expansions end. That has yet to happen in the current bull market, which suggests that the bull market still has some room to run.

Outlook

Here’s what I think will happen based on my discretionary outlook.

1. 2018 will trend higher but will also be a choppy year.
2. The S&P 500 has approximately 1 year left in this bull market.

I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a big correction at this point in time. I ignore small corrections. I only sidestep big corrections and bear markets.

I have been long the S&P 500 since September 7, 2017, when it was at 2465.