January 2017: A Minor Inflection Point

Please see the links above and to the right for information on the MRI ratings and Focused 15 Investing.  

US large cap industrial stocks shifted this week to somewhat resilient, a market resilience index (MRI) rating of 2 on a scale of 0 to 3, with 3 being most resilient. Risk assets in general have been resilient (MRI rating of 3) since before the November election and this represents a minor inflection point. The decrease in resilience may result in temporarily lower prices for these assets, but the declines are unlikely to last long enough to for investors to trade them. Price could well be higher several weeks from now.

While these comments are specific to US large cap industrial stocks, other major stock markets are in a similar circumstance with respect to resilience. These comments also apply to US transportation stocks, Japan stocks, and Europe stocks.

Other markets are still rated highly resilient (MRI rating of 3). These include NASDAQ, UK stocks, US small cap stocks, and emerging market stocks. These markets are more resilient but may be affected by the choppiness of the markets mentioned above.

Yields on the US 10 year bond have been resilient (MRI rating of 3) for the last several weeks. The rating dropped to 2 this week also a minor inflection point. The mid- and longer-term measures of resilience for the 10y yield are still positive. Yields may decline over the next six to twelve weeks, but the trend toward higher yields appears intact at this time.

Bond prices are correspondingly more resilient over the short term.  However, the longer-term trend toward lower bond prices appears intact.

Gold is somewhat vulnerable. It moved last week to a MRI rating of 1, up from 0. There may be some recovery in Gold prices, but the mid-term outlook continues to be weak.