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Record Highs For US Equities, Europe and Asia Still Lagging Significantly

Aug 24, 2018

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It has been a solid week for United States equities with the S&P, Russell 2000, and Nasdaq all reaching record highs. Europe and Asia recovered from last week’s decline, posting healthy, positive returns. The FTSE 100 and the ASX 200 are the exceptions, down 0.61% and 1.13%, respectively.

 

US Equity Markets


For the week, the S&P is up 0.88%, the Russell 2000 +1.94%, and Nasdaq +1.67%. The Dow continues to lag significantly on the year and for the week trailed the other indices with a +0.51% print. 
 
Strong economic growth in the US and sound underlying economic fundamentals are supporting US equity markets. Consumer spending, retail sales, productivity improvements, strong core capital goods investments are creating expectations that past strong economic growth will carry into the third quarter. Recently released Fed minutes reinforce the view that the US economy is growing above trend line. Chairman Powell’s comments today underline the Fed policy of gradually increasing interest rates in small steps to support continued economic expansion. 
 
In the United States, expectations of continued strong domestic economic growth have overshadowed Sino-American trade tensions, Turkish economic turmoil, and escalating political dissension in Washington. In contrast to this bullish view, wary investors argue that the effects of corporate tax cuts, fiscal stimulus through rising deficits and the tariff war will lead to slowing growth in the fourth quarter accompanied by concomitant declines in equity markets.  
 
At this time, the total return of the S&P 500 is up
2.26% in August and 8.87% YTD; the Russell 2000 is up 3.37% MTD and 13.24% YTD; the Nasdaq is up 3.71% MTD and 15.92% YTD; the Dow remains the laggard with a 1.75% return MTD and a YTD return of 5.90%

     

European/Asian Markets


Europe and Asia markets were positive in a largely quiet week, moving off the lows of the previous week’s sharp decline. Economic indicators in Europe are still acceptable while not exceptional. Germany announced a record-high government fiscal surplus with calls for increased infrastructure spending. Nonetheless, lurking in the background is on-going Turkish economic disorder and fears of a debt crisis affecting European banks, particularly since 70% of Turkish debt is in foreign currencies. 
 
Against this background, the Euro Stox 600 is down
1.80% in August, but it is up 1.37% YTD.  Despite a good week, the mighty DAX is down -3.21% MTD and -4.05% YTD. The FTSE 100 is down 2.80% for the month, and barely in negative territory with a -0.03% YTD return. The CAC 40 is down -1.43% for the month but remains the best European performer with a YTD total return of 4.94%.
 
With the exception of the ASX 200, Asian markets, likewise, had a good week although Sino-American trade tensions remain a significant threat. Recent declines in Chinese consumer spending and infrastructure investments seriously threaten the growth targets of the Chinese government. Beijing is responding with reflationary strategies of injecting liquidity into the economy, encouraging local government infrastructure spending and instructing banks to expand lending. Trade negotiations in Washington produced no notable progress. At this point, China and the United States have not found an acceptable solution to the tariff war.
 
The total return of the Hang Seng China Enterprise Index is down
-2.22% in August and -4.65% YTD; the Hang Seng is -2.99% MTD and -5.02% YTD. The Nikkei 225 continues to stay in a narrower range and is +0.21% MTD and +0.29% YTD. The ASX 200, despite a bad week (-1.13%), is still up for the month with a +0.32% return and a +6.80% YTD.
 

Quantshots


This week, we highlighted 11 of the Top Buys from our 17 Global Top stock idea models. Click on any name for detailed information:

Adobe Systems (ADBE) -- Top Buy -- US Large-Cap
Churchill Downs (CHDN) -- Top Buy -- US SMID-Cap
CSPC Pharmaceuticals (SEHK:1093) -- Top Buy -- China All-Cap
Dollar General (DG) -- Top Buy -- US Large-Cap
Honda Motor Co (TSE:7267) -- Top Buy -- Japan Large-Cap
Konami Holdings (TSE:9766) -- Top Buy -- Japan Large-Cap
Royal Dutch Shell (ENXTAM:RDSA) -- Top Buy -- European Large-Cap
Seven & I Holdings Co (TSE:3382) -- Top Buy -- Japan Large-Cap
Sino Biopharmaceuticals (SEHK:1177) -- Top Buy -- China All-Cap
Toyota Motor Co (TSE:7203) -- Top Buy -- Japan Large-Cap
Yum China Holdings (YUMC) -- Top Buy -- China All-Cap
 

Q-Options


This week, we closed 3 Q-Options trade ideas*:

Adobe Systems (ADBE) Call Spread Collar -- +744.44% return on premium
Home Depot Inc (HD) Call Spread Collar -- +105.36% return on premium
The Sherwin-Williams Company (SHW) Put Write -- +48.96% return on premium

*Returns are not annualized

We also initiated the following new option trade ideas this week:

Assurant Inc (AIZ) -- Yield Enhancement -- Short Strangle
Autodesk Inc (ADSK) -- Bearish -- Call Write
E*Trade Financial (ETFC) -- Bullish/Yield Enhancement -- Put Write
First Solar (FSLR) -- Bearish/Yield Enhancement -- Call Write
Qorvo Inc (QRVO) -- Bearish -- Short Risk Reversal
Royal Dutch (ENXTAM:RDSA) -- Bullish -- Call Spread Collar
U.S Steel Corp (X) -- Bearish/Yield Enhancement -- Call Write
 
Please note Option trade ideas should be executed on the days they are released – changes in underlying price and implied volatility will significantly affect strike and tenor. Also, please watch for closing trade notifications which are published daily.  Back to top  


Cryptocurrencies


Our crypto signals have been updated twice this week, most recently on Wednesday morning, August 22nd. Highlights of our most recent signals are:

 

  • Bitcoin (BTC) -- Do Now Own with an accuracy rate of 62.28%
  • Bitcoin Cash (BCH) -- Do Not Own with an accuracy rate of 65.65%
  • EOS (EOS) -- Do Not Own with an accuracy rate of 64.73%
  • Ethereum (ETH) -- Do Not Own with an accuracy rate of 62.98%
  • Ethereum Classic (ETC) -- Buy with an accuracy rate of 66.29%
  • Litecoin (LTC) -- Do Not Own with an accuracy rate of 63.21%
  • Ripple (XRP) -- Buy with an accuracy rate of 63.62%