Daily Gains Letter ( — www.DailyGainsLetter.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is cautioning that leading economic indicators, including higher interest rates, gross domestic product (GDP) growth, and nervousness in China, Europe, and Russia, suggest the major stock market indices remain under selling pressure.
“The stock market is coming under some selling pressure, but investors shouldn’t really be surprised,” says financial analyst George Leong. “The reality is that the advance of the stock market into its fifth year looks somewhat weary, given that interest rates will be rising in 2015.”
Leong explains that higher interest rates translate into higher bond yields, which are not conducive to a higher stock market. The current 10-year bond yield is a mere 2.45%, so it’s not an immediate concern, but looking ahead, interest rates will head higher; this could come as soon as the first quarter of 2015, rather than the previous estimate of mid-2015.
The strength of the advance reading of second-quarter GDP growth at an annualized four percent, Leong continues, was enough to send some investors to the exits. The fear is that if the upcoming readings are strong, it could signal higher interest rates sooner. Of course, investors still have to wait for the third and fourth quarters of 2014 before making a snap judgment on when rates will head higher.
“There’s also growing nervousness towards China and Europe. The reporting of a weaker-than-expected HSBC Services China PMI of 50.0 in July is scaring the stock market, and a weaker China is not good for the global economy,” he adds. “In addition, there is also have a potential recession in Russia, which could have a real impact on the eurozone and Europe due to the rising economic sanctions against Russia.”
Leong notes that with regards to the overall stock market, the technical picture is weak and vulnerable, especially with small-cap growth stocks. In July, the S&P 500 and DOW returned a negative month for the first time since January. Further, the major stock market indices, including the NASDAQ, DOW, S&P 500, and Russell 2000, have all dipped below their respective 50-day moving averages (MAs).
“The DOW turned negative on the year and its inability to hold above 17,000 on four breaks was bearish. Moreover, the index is threatening to test its 200-day MA of around 16,315. Small-cap stocks have shown the greatest vulnerability on the stock market, though, as the Russell 2000 hovers around its 200-day MA, in danger of moving towards the 10% correction zone,” Leong concludes. “At this point, I’m not convinced upside moves in stocks are sustainable, especially without any sustained leadership from the financials or technology stocks.”
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Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.
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