More than two years ago, we introduced the term “Ameribuy” to the investing world. It was right after the Brexit vote that shocked the pundits.
Our investment thesis at that time was very simple. Money was pouring into the U.S. as investors worldwide were looking for the best possible investment returns. The S&P 500 triggered a new Stock State Indicator (SSI) Entry signal only two months earlier.
Two years later, and we’re looking at “Ameribuy, part 2.” The domestic U.S. markets have been the best place to be invested in 2018.
In spite of the negative daily headlines that catch our attention — both trade wars and Twitter wars — the U.S. markets continue to move higher. Even the threat of a $5 billion fine didn’t stop Alphabet’s stock (GOOGL) from making a new all-time high just the next day.
And it was just reported today that the U.S. economy grew at a 4.1% annual rate in the second quarter. The first quarter numbers were also revised higher. Much of this growth was fueled by consumer spending, which was greater than expected.
SPY, the ETF for the S&P 500, stopped out in early February. Since April, it’s been moving higher and just hit a new SSI Entry signal on Wednesday.
We began steering you toward the small-cap stocks in April. The S&P 600 Small Cap Index is up an astounding 17% since the market lows in February. It’s up more than 40% since it triggered an SSI Entry signal in September 2016, and it continues to make new all-time highs.
Many of the world’s markets have cratered — whether it’s the small emerging markets or the large industrialized markets.
The emerging markets were the first victims of the trade war volleys. EEM, the emerging market ETF, started dropping in late January and finally hit its SSI Stop signal a month ago.
We told you that China was particularly hard-hit. The chart for FXI, the ETF for large-cap China, mirrors the stock price loss of EEM.
But it’s not just the emerging markets that have been decimated. The German stock market has also stopped out during this time of increasing noise. This is the chart for EWG, the ETF for Germany.
The Japanese market came close to stopping out, but it’s still in the SSI Yellow Zone. This is EWJ, the ETF for Japan. Although it bounced a little higher recently, the trend is still moving down.
The American economy is strong and insulated from what’s happening around the world. The U.S. stock markets just don’t perceive that the trade-war threats will have much effect on domestic companies.
This isn’t to say that everything is perfect with the U.S. markets. The Dow Jones Industrials are still a long way from triggering an SSI Entry signal. More than 40% of the Dow and S&P 500 stocks are still in the SSI Red Zone. Half of the sectors are still in the SSI Red Zone.
Are there worries? Sure. If the Iranians react to U.S. threats by closing off the Straits of Hormuz, oil prices could easily double or triple. We’re still in a Goldilocks economy. Business is good, employment is high, and interest rates are still at historically low levels. Consumer spending probably can’t continue growing at such a phenomenal rate and could fall off. If one (or more) of these issues flares up, it could definitely impact our markets.
These worries won’t stop me from being in the market. Markets like climbing walls of worry. As an investor, it’s important to be aware of the risks, but invest based on the signals. And right now, the Ameribuy signals continue to flash green.
Have a good weekend,
Richard Smith, PhD
CEO & Founder, TradeStops