Market Studies For Thursday, July 28: U.S. Stocks, Utilities, & Foreign Stocks

  1. Quantitative tapering is a very small short-term bearish factor for the stock market.
  2. The Utilities sector will probably go up in the next 6-12 months
  3. Foreign stocks will probably fall a little more within the next 1 month.

Quantitative tapering

The Federal Reserve is reducing its balance sheet by letting Treasury bonds mature and not reinvesting those proceeds.

Year-to-date, the S&P 500 has a tendency to go down on the day that the Fed reduces its balance sheet. But as you can see, quantitative tapering has no impact on the short term or medium term. This is useful for day traders, but nobody else.

 

The recent bearish tendency disappears 2 weeks after the Fed tapers. The next taper is scheduled for Saturday, June 30, which will impact the stock market on Monday, July 2.

Utilities

The Utilities sector has massively underperformed the S&P 500 since December 2017. However, recently the Utilities sector has outperformed, having gone up 10 days in a row.

The Utilities sector has closed above its 200 daily moving average for the first time in half a year.

 

Both of the historical cases (since 1997) in which Utilities closed above its 200 dma for the first time in half a year occurred after Utilities made a bear market bottom.

 

We can expand the sample size a little by looking at what happens next when the Utilities sector closes above its 200 dma for the first time in at least 3 months.

 

Click here to download the data.

As you can see, the Utilities sector tends to go up in the next 6-12 months.

Foreign stock markets

Foreign stock markets have been crushed year-to-date by Trump’s tariff talks. Here’s the MSCI World (ex-U.S.) Index. Notice how it has fallen below its 200 daily moving average.

 

Meanwhile, the S&P 500 (U.S. stock market) is still above its 200 daily moving average.

Here’s what happens next when the MSCI World (ex-U.S.) Index falls -3.5% below its 200 daily moving average for the first time in 3 months.

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