While this was no major reversal, the S&P500 did at least stop rising. Last week it gave back a tiny 0.07% on moderate volume. Volatility crept back down near the lows of 2016, lows that were set in mid-July. So even though investors have enjoyed a big post-Brexit bounce, it’s worth noting that the S&P500 is still sitting only about 2% above the highs it established in mid-July of 2015, over a year ago. And broader indices such as the NYSE composite are actually below where they were in July 2015. The point is that despite the big move over the last 30 days, the S&P has delivered a very meager return to investors over the last twelve months…..and it’s important to remember that this return has been generated with substantial risk—the S&P is an investment class than can lose (and in the past has lost) over 50% of its value, in a relatively short period of time. By comparison, investors who’ve owned 10 year Treasuries over this same period have not only enjoyed a higher rate of return, but they done so with substantial lower risk of loss.
From a technical analysis perspective, the S&P still sits at extremely overbought levels. And after last week’s slight retreat, the odds of a more material pullback have increased—specifically because the upside momentum indicators have stalled and have even started going into reverse.
In US economic news, there were a lot of disappointments last week. US home prices, as measured by the Case Shiller index, have started to slow their appreciation; while still rising, the rate of the price growth is dropping notably. PMI flash services missed expectations. Durable goods orders were a disaster; both the headline and ex-transportation results missed badly. Pending home sales also missed. Wholesale trade missed. International trade missed. Initial jobless claims were worse than expected. Consumer sentiment missed. The Kansas City Fed manufacturing index missed, and the latest GDP figure missed badly…coming in a less than half the expected growth rate.
As mentioned above, one asset class that’s done very well over the last year is US Treasuries. But another asset class, far smaller and less promoted in the mainstream media, has done even better. Both gold and silver have been booming lately. Since bottoming in December of 2015, gold has jumped over 25%. And silver has soared by about 50% over the same time frame. Why are these precious metals exploding? It’s not quite clear exactly what the reason is. But the last time these two metals made similar moves—off important lows—back in 2008, the both went on to climb much further. Gold peaked after climbing about 150% and silver peaked after skyrocketing about 400%.
So keep an eye on precious metals. Despite the already impressive moves over the last six months, they could both enjoy far more upside over the next 18 months.