MARKET COMMENTARY – The Weekend Report – 8.2.2019:

The Week’s Performance: Market Consolidates on Uncertainty in Trade and Future Rate-cuts

• US: S&P 500 -3.1%, Nasdaq -3.9%, Dow -2.6%, Russell 2000 -2.9%
• Commodities/Rates: WTI Crude Oil -4.5%, Gold +1.9%, 10-Year Treasury Yield slumped 22 basis points to 1.85%
• Europe: German DAX -4.4%, France CAC 40 -3.6%, Stoxx Europe 600 -3.22%
• Asia: Japan Nikkei -2.1%, Korea KOSPI -1.0%, China Shanghai Composite -2.6%

It was rough week for the Major US Indexes, though our clients are in good position as we raised cash on July 12th when the S&P 500 was around $3014. Where we can save a few percentage points, we will. As it stands we have about 40% ready to reenter. Don’t let the noise cloud the mind. These are the dips we must take advantage of short-term in order to hopefully provide for results mid to long-term. I can promise you we won’t time everything perfectly, but mid-term we will look at these levels and ask, “Why didn’t I buy more?”

So, where do we stand? Well, we are about (3.5)% off all-time highs. Not to be a broken record, but a year on averages sees three separate dips of (5)%. So, this is normal and healthy. We have warned of the S&P 500 (SPX) likely testing the $2925-2950 range. Friday we went past this level and tested the $2914 level (61.8 Fibonacci retracement level - chart below). Could we see a bit more consolidation? Yes, but it will likely lead to buying shortly. Mid-term these levels provide opportunity, but short-term, over the next 6-12 weeks, it will be choppy with trade news the forefront as the President and the Fed duke it out.

As projected, the market was expecting too much from the Fed. A 25 basis-point cut was more than fair considering where the economic numbers are coming in. The market expected a 25 basis-point cut with a guidance that signaled 3-4 additional rate-cuts this year. People, the Fed has learned not to give guidance, as it gets them into trouble. What happened in October 2018? The Fed guided 3-4 additional rate hikes in 2018 and the market plummeted ~(20)%. How quickly the tables have turned going from rate-hikes to rate cuts! As it stands now, we have the President using tariffs as a pawn to likely get the Fed to cut rates more down the road. Bottom line, any and all Presidents want to be in administration during a period when the Fed is making monetary policy easier (quantitative easing); hence the President’s threats toward the Fed. In reality, the Fed did the right thing by not giving guidance. The President’s immediate response after the Fed’s decisions, which seemed like a way of getting back at the Fed, was a $300BN threat of tariffs on China, set to take effect in September. It’s a little game at this point. Ignore it; laugh, and slowly buy this dip. In reality, the President doesn’t have much incentive to get a trade deal done quite yet.

Here’s the backdrop: Earnings are impressing to the upside, payrolls are +1.51% YoY, 106 consecutive months of jobs growth (longest streak in history), better-than-expected GDP, consumer confidence is high, lending is strong, add to it that we just had a rate cut within longest expansion in US history (121 months). I am not betting against the market nor fighting the Fed. Could it all change? Sure. Investors need to understand that the stock market should not be used as a barometer for the economy. It isn’t all “blue skies and roses” out there! We were at all-time highs because the right things were being done to elongate the rally. Lowering interest rates is accommodative. We remain cautious short-term, but mid-term we will work through this trade negotiation mess. Should things worsen, the Fed already claimed they want to get ahead of a recession; hence their easing this week by 25 basis-points. We will be slowly adding over the next couple weeks. It would not surprise us to see the $2914 level be tested a bit more as it was Friday, 8.2.2019. Friday, tested the $2914-2930 for quite some time. When we see three straight days of above average volume selling from institutions, one must be cautious. Mid-term, this dip will soon be forgotten. If we trickle lower than $2914, which could happen, these are the next levels we will watch (chart below).

Notable Moves/What we are Watching?

• Not surprisingly, the safe-haven areas in Real-Estate (XLRE) and Utilities (XLU) were the winners this week. Notice the big moves in “risk-on” sectors. This will get many licking their chops soon to pounce on some good names. In time!

• Gold had another boost from the uncertainty in the market, gaining 1.9% this week. This isn’t a horrible short-term play/trade, but is not a great long-term investment in our mind.
• Oil was crushed Thursday (~7.0)%, only to have a nice bounce of 2.35% Friday. The week still closed down (4.5)%. As reiterated in previous commentaries, Crude will struggle around the $60 mark knowing the companies tend to hedge around this level. Given any OPEC or war news could make oil spike, but again I’d be careful here long-term. The past performance over the past decade in commodities has been hideous. Again, these areas are trades; not investments in our mind. In other words, these are short-term plays, but not long-term investments. Money can be made here though it will test your risk-tolerance quickly.
• The Russell 2000 continued to struggle past its $1580-$1614 range this week. In time, we will likely pierce this resistance in the mid-term, but will take some time.

• Major US Indexes are all testing their 50-Day Moving Averages or 200-Day Moving averages. It could be that we go a bit lower from here, but I will be entering new monies slowly the over next couple of weeks on negative headline news.

We are locked, loaded, and ready to go in constructing our new portfolio. We are seeing opportunity in Tech (Semiconductors, Software, Computer Services, and Hardware), Communication Services, Consumer Discretionary, Healthcare, and Financial Tech. As of Friday’s close, most of our holdings were showing strength around the 50-DMA, retained Relative Strength Indexes (RSI’s) around the 50 mark (ideal), and have SCTR’s generally above 80. For those that don’t know what SCTR readings are, they are essentially a technical indicator meant to aid in finding leaders and laggards while encompassing several different technical indicators (for a more in-depth scope check out this link https://school.stockcharts.com/doku.php?id=technical_indicators:sctr). In short, we are looking for areas that we believe will be the first bought during this period of consolidation. Easier said than done of course.

We look forward to what comes ahead, though discipline is required during periods of consolidation. These periods are normal and usually lead to higher-highs. Clients, if you are cash hoarders (you know who you are) and tend to keep too much within your 0.000% interest earning bank account, now is a good chance to add to your investment accounts. Remember if you’re not making 2% somewhere, you are losing to inflation. The market has time and time again proven to be one of the most consistent areas of saving and keeping up with inflation regardless of risk tolerance. Hang tight. We are here for you and will keep you apprised.

Have a great weekend!

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DISCLOSURE STATEMENT

This post is for informational use only. The views expressed are those of the author, Jonathan M. Gurney. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed.