Like Pavlov’s dog, the market starts salivating at the words “trade deal” and pushing higher. But too, each time a “deal” is close, inevitably there comes the realization that there is no there “there”. Friday it was announced that part one of a trade deal was made, reversing the decline from Wednesday when it was thought the Chinese trade delegation was leaving on a jet plane. From the bottom to the peak on Friday, the SP500 rose by nearly 3%. What do we know after this weekend? China is buying more agricultural products and tariffs that were set to go into effect next week have been postponed. More tariffs due in December were not part of the discussions nor has been much information been provided on intellectual property solutions. Details are not yet known. Signatures are expected in November. Plenty can happen over the next month. All that said, the US economy continues to demonstrate weakness, with the bulk of last week’s releases coming in below expectations. This week the focus shifts to earnings. Trade will not be going away anytime soon, even with the “done” deal. Stay tuned!
On the back of trade “news”, the markets are once again within hailing distance of all-time highs. However, this trip to the top is coming with fewer stocks participating in the rally. Roughly 60% of all stocks on the NYSE are above their short-term average price, well below the peak in April of 90% above their average short-term price. Looking a bit longer term, only 56% are above long-term average prices, below recent peaks of 70% being above. Finally, looking at stocks hitting new yearly highs vs. lows shows a balance between the two. Since mid-July, roughly one-third of the trading days have had a relatively high number of stocks hitting lows AND highs. The Dow remains below the levels of mid-July as well, indicating a large divergence between stocks doing well and those doing poorly. Historically, the above combination means stocks are likely to continue to struggle. If/until the markets can break out of the year plus trading range on significant volume with greater participation, we expect the markets to continue to flounder and still driven by trade news.
The bond market had a rough week as a result of a variety of news that conspired to push up yields. The news of a trade deal could mean increased economic activity, which is good for the consumer but may push inflation rates higher. The inflation data from the past week indicated that while the headline is benign, underlying trends are showing that inflation is picking up. Finally, the Fed is buying short-term treasuries to help with the overnight “repo” (repurchase) market for extremely short-term borrowers. The combination of the above last week pushed the yield curve back to “normal” from being inverted. Some look at the steepening yield curve after a period of inversion as a sign a recession is close at hand. The data does continue to weaken, but we are not yet ready to make that call just yet.
Without the normal momentum that stocks have when making new highs, the industry groups also tend to be in the middle ground, giving neither good or bad readings. For example, at the April highs, rising quickly from the December lows, half of the SP500 sectors reached overbought territory and were ripe for a break. Only two, utilities and consumer staples continued to rise following April. The other three have struggled to surpass their April highs. At the December lows, seven of the ten sectors were in the buy range and all took off for the next four months. Today is a different dynamic as the markets have seesawed back and forth for much of the past six months. There has not been enough momentum to provide a sell signal, but also not declining enough to provide a buy signal. The only sector that looks poor here is the utilities, as we outlined last week and declined this week as the overall market rose. Being interest rate sensitive, utilities provide a window into the bond market through equities. If bonds are rallying (and yields falling) it is a good bet utilities are doing well. The signal last week could mean rates are done falling for a bit and taking a break as good news from the trade front captures investors fancy.
Although stocks are trading close to all-time highs, the bulk of stocks making up the market do not seem to be coming along for the ride. As has been the case over the past two years, as the markets approach 3000, there is some poor news on trade or interest rates to push the markets back down. Yields are set to rise a bit over the coming weeks, taking a break from their recent decline.
The opinions expressed in the Investment Newsletter are those of the author and is based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.
Kingsview’s newest Partner Tony Lantis has joined the firm as of September 19th, 2019. After earning a degree in Business Administration from the University of Wyoming, Tony began his now 26+ year financial services career at Dain Bosworth, most recently advising clients at Wells Fargo out of their Casper, Wyoming branch where he managed over $55,000,000 in assets. Accompanying Mr. Lantis is long-time client service partner Caryn Young.
Tony’s desire to put clients first is in perfect alignment with Kingsview’s client servicing ethic and independent platform. His ongoing passion of finding ideal solutions to each client’s individual needs and assisting them in assuring those goals are met makes him a uniquely qualified Wealth Manager Partner who will carry on the firm’s mission to Elevate the Standard of Care.
At the Casper office, Tony will continue to deliver measured and personalized advice to his clients, embracing the firm’s no-nonsense approach to advice, investment management and financial planning.
“We are extremely excited to welcome Tony as the newest Partner to our firm,” noted Chief Operating Officer Sean McGillivray. “Our industry has done a poor job of engaging clients and delivering on the promises they make. Tony’s approach that puts the interest of clients first will continue to advance our desire to transform the industry.”
Kingsview’s Casper, WY office can be found at 152 North Durbin St, Suite 230 and can be reached at (307) 201-3610.
Senior Vice President and Portfolio Manager Paul Nolte is interviewed on WGN Radio’s The Opening Bell by Steve Grzanich on the markets and Federal rate cuts.
Hear the full interview here