I hope you all had a good week. This one might not have delivered as much excitement as the last, although talk from Central Bankers about renewing QE is pretty hard to beat for investors! That said, it may prove to be the ‘calm before the storm’ with the G-20 summit getting underway this weekend, with the highly anticipated talks between Presidents Trump and Xi potentially providing an opportunity for a US-China trade deal, which would be a great relief for investors.
With today being the final trading day of the month, half and quarter, stocks have gained almost 6% in June and bonds investors are sitting on the best periodic gain this year as the QE theme of the past decade resumed. Earlier in the week, US Treasury Secretary and former Investment Banker Steve Mnuchin said that he was “hopeful” of a trade deal, that he considers to be “90% complete”, with Trump and Xi sharing a “close working relationship.” This encouraged further buying of equities and bonds, adding to gains this month.
But amidst the chatter, we should remind ourselves of the fundamentals encapsulated in our process so that we don’t trade based on the noise. Here are a couple of exclusive previews taken from our brand new Checklist Report for the month ahead, which may well contradict the consensus view on risk markets...
First of all, our US Equities Checklist has reversed to a negative score (bulls take note!), suggesting that there may be downside risks in July.
Our Japanese Yen Checklist appears to confirm this, given a positive score suggesting that USDJPY may well head lower (which is typically positively correlated to the S&P 500).
To avoid this turning in to a “bear-fest”, its worth remembering that the long term picture remains positive for each of these asset classes, given the positive score exhibited by our Business Cycle Checklist. At +3, there is still some way to go before we should be worried about the onset of a contraction, and probable recession, in the coming months.
A final thought that I shared with Trading Club members in this week’s video, is the importance of being able to correctly identify the primary driver in a given market, for a given time (something that Lex explains further in our Million Dollar Traders Course). At present, it is my view that fundamentals are taking a back seat to news flow currently, and speculators are in control trading primarily on expectations rather than reality.
Although typically it would be unwise to trade on hope over fact, it does feel like QE trumps all, and if the past few years are anything to go by then it is probably worth 'joining the party’ and discounting the fundamentals in the short term. However, our process shouldn’t be ignored as it highlights the magnitude of the risks if we are wrong, and would add to conviction if the Checklist score changes to confirm our view. In summary, markets may by driven by a myriad of factors short term, but over the long run they will on average reflect the balance of fundamentals - making it essential to follow our process.
Time will tell how this all plays out, but rest assured, with our Checklist process you will be ahead of the game and better informed than many investors who do not employ the same tools that we do as professional fund managers (and honest educators!).
If you would like to learn more please join us as a member of our Trading Club or learn from Lex with our Million Dollar Traders Online Course.
Have a great weekend,
James Helliwell | Chief Investment Strategist
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