The upcoming week brings few major economic reports that have the potential to move the markets, especially early in the week. The first major report is the July Existing Home Sales on Wednesday morning. Consensus is calling for an annual sale rate of 4.5 million homes compared to June’s number of 4.35 million homes. Later in the afternoon the focus will be on the Federal Reserve’s Open Market Committee release of the minutes from it’s last meeting. Investors will be parsing the minutes to determine the conviction, or lack of conviction, by the Federal Reserve regarding a new (Photo by: Ben Schumin) round of quantitative easing. In recent years, the Federal Reserve has exerted strong influence over the stock and bond markets, and this influence remains. If the Fed implies that quantitative easing is coming, I believe the prices of both stocks and bonds will be lifted. The regular Initial Jobless Claims report will be out Thursday morning with no change expected from last week’s report of 365,000 new claims. Finally, Friday wraps up with the July Durable Goods Orders report. This important gauge of future manufacturing strength is expected to show a slight increase from 1.6% in June to 1.9%. Modest and sustained manufacturing strength has been one of the keys that has kept the US economy from slipping back into recession. Investors want to see this continue.
The Dorsey Wright & Associates analysis of the markets indicate that US stocks and Bonds are the two favored major asset categories followed by Foreign Currencies, International stocks, and Commodities. Middle capitalization stocks are favored, as is growth over value, and equal-weighted indexes over capitalization weighted indexes. Equal-weighted indexes are those where each stock in the index is weighted the same, while in capitalization-weighted indexes the larger stocks have the largest weighting consistent with their size relative to the other stocks. The relative strength sector weightings favor Consumer Discretionary, Real Estate, Information Technology, and Health Care. US Treasuries and International Bonds are favored in the Bond category, while US and Developed Markets are favored within the International stock category.
Paul L. Merritt, MBA, AIF®, CRPC®