Nolte Notes 10.7.19

October 7, 2019

How close are we to a trade deal? How close are we to a recession? Both questions have been circulating over the past few months and seem to have binary outcomes. Also, both move markets violently in either direction. For example, this week, the manufacturing data from the ISM indicated the sector is in contraction, just like manufacturing is globally. The surprise was the services index, which, although expansionary, was well below expectations. Initially, the markets sold off on the news, but quickly reversed course when it became obvious that all this “bad” news was going to keep the Fed engaged and more rate cuts would be coming. The opiate of choice for the markets is lower interest rates. No matter how/why we get there, we just need ever-lower rates. Finally, the employment report had something for everyone. It showed generally slower payroll growth, no real wage growth, and an unemployment rate that is at a 50-year low. All kept the party going on Wall Street. Trade will move to center stage this week as negotiators get together, so expect more fireworks from the markets. Just another manic Monday!

The back and forth on a recession stems from a couple of items. First is the yield curve. The inversion (where short rates are higher than long) has been in place for over a month. This doesn’t mean we are IN a recession, just that one is likely in about a year or so. Second, the manufacturing sector’s data is following the glide path of prior recessions. If history is an accurate guide, the economy is about six months away. However, financial conditions continue to be rather easy as the Fed is now cutting rates along with global central banks. The employment report was good and supports a still-growing economy. Economic pressures like 2008 and 2000 are not present today. Consumer debt is manageable, although high, and growing government debt is an issue. It is too soon to call for a recession today based upon the breadth of economic data. Slowing, yes, but not recessionary. The lack of wage growth in the employment report on Friday is likely to also point to lower inflation data reported mid-month and should give the Fed additional reasons to stay on the cutting course.

Unlike the stock market, the bond market continues to enjoy new all-time highs. With the Fed back in play and economic data coming in a bit weaker than expected this past week, bond yields are falling back toward the zero line, with five year Treasury bonds yielding just over 1.30%. With still negative rates around the world, pressure continues to build to buy the “high yielding” US debt. This has kept the US dollar stronger than it otherwise would be and pushes yields lower still. Based upon the still very modest inflationary data and stable commodity prices, the bond market can continue to rally, pushing rates even lower. Investors in the bond market have experienced stock like returns this year without all of the drama. With a Fed looking to cut further before the end of the year, those returns could get even better.

The most compatible sector to a declining interest rate environment within the SP500 is the utility stocks. They have generally been expensive, compared to their historical valuations and that is again true this past week. The momentum model has flagged them as likely topping out, similar to late March of this year. Using March as a guide, the sector was flat over the following two months before interest rates broke lower and utilities took off again. Historically, these signals tend to lead to a long period of underperformance vs. the overall market or outright declines in prices. Tying back to bonds, this could mean the furious decline in yields over the past couple of weeks could be ending for a bit. One other sector that was flagged over the past few weeks and has been highlighted here has been energy. After the bombing of the Arab oil refining facility, energy prices spiked only to retreat to their levels before the bombing. The remainder of the market sectors is in “no man’s land”, with only utilities showing signs of being extended and nothing showing up as cheap. Even looking out beyond the SP500, there is little looking especially cheap or expensive right now.

After a few weeks of having a diversified portfolio paying off, it is back to the SP500 as dominating performance. Long-term, however, bonds have provided the same return as stocks starting in December 2017 and part of the reason for our overweight to bonds over the past two years.

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.

KIM Investment Committee Market Summary – Q3 2019

CIO Scott Martin and SVP Paul Nolte discuss the end of the recent quarter and give insight as to what is to be expected in the months to come.

CIO Scott Martin and SVP Paul Nolte discuss the end of the recent quarter and give insight as to what is to be expected in the months to come.

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CIO Scott Martin Interviewed on Fox Business News

CIO Scott Martin discusses IBM with Stuart Varney on Fox Business News.

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Nolte Notes 10.14.19

October 14, 2019

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.

CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin is interviewed on Fox Business on the slide in the stocks on trade tensions.

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CIO Scott Martin Interviewed on Fox Business News

Stuart Varney interviews CIO Scott Martin on Fox Business on the turn in the markets.

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CIO Scott Martin Interviewed on Fox Business News

CIO Scott Martin is interviewed by Stuart Varney on Fox Business News on trade optimism amongst the push for impeachment.

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CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin is interviewed on Fox Business News on the bounce back in the stocks after the Fed’s cut interest rates.

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Wells Fargo Advisor Joins Kingsview’s Casper, Wyoming Office

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.

CIO Scott Martin Interviewed on Fox Business News

CIO Scott Martin is interviewed on Fox Business News discuss the 2020 Democratic giveaway promises.

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