The Market's Entering A Transitional Period

(Click on image to enlarge)

Source: TradingView. All indexes are unmanaged and cannot be invested into directly.

Oppenheimer's Ari Wald says we've now broken a multi-year uptrend in the US stock market that started in February 2016 with greater downside risks to commodities and other areas. 

Wald now sees us in an important transitional period for stocks where fund managers need to keep a close eye on credit spreads and further weakness in the high yield market.

Here's what he told Financial Sense Newshour listeners regarding the current outlook (see Market Breadth Has Peaked, Technician Warns for podcast).

“Uptrends don’t just reverse from up to down. I think we’re at a transitional point where the trend is reversing sideways,” Wald said.

The market is already sending warning signs that we’re entering this transitional period. Factors such as leadership moving toward low volatility bond proxy sectors, cracking credit spreads and a weakening high yield market, all together signal where the greatest risk lies in the market.

high yield spreads

Source: Bloomberg, Financial Sense Wealth Management

Wald believes that risk is in commodities and globally exposed areas which are falling to multi-decade lows. It’s this type of weakness he said, that poses the greatest threat because it’s a loss you won’t get back. These areas tend to have much more damaging breakdowns, and are places you’ll want to avoid, Wald pointed out. “The weak tend to get weaker when the macro turns and that’s what we’re seeing.”

While Wald noted the uptrend is broken and that such volatility did damage risk assets, he says he’s hesitant “to get too downbeat.” The silver lining, he added, is that some of the risk assets are so oversold, they’re “due for some upside relief.”

Wald cautioned against positioning yourself too defensively and said the way to play right now is with balance. Focusing on dividend growth rather than high dividends is a better bet as there tends to be a quality aspect to those stocks.  

1 2
View single page >> |

Academics, journalists, and government and NGO officials who want to subscribe to my newsletter, which sometimes includes portions of this blog and sometimes (as in this case) does not, should write ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.