From Melt-Up Calls, to “Blame it on China” Melt-Down — in one short week

Chris Perras discusses just how fast the financial media can change their tune on the markets, the “dead zone,” China, and reiterates our view for the markets in 2019

Chris Paris: This is Chris Paris, chief investment officer at full Carvers Financial Group. Welcome to the May 10th edition or weekly Stock Talk Podcast: Keeping you connected to your money. Each week, we share with you our views on the markets and try to educate you to how the stock and bond markets work. This week’s episode is entitled From Melt-up Calls to Blame it on China: All in one short week. Well, so far so good, our patience and discipline of being systematic versus emotional and reactionary is paying off. The S&P 500 has quickly fallen about 4%. Spot volatility has ramped from an Easter low of 12% to over 22% and almost 25% backward.

That happened yesterday, as the market has pushed out the China-American trade deal. As listeners know, this is exactly in line with our outlook, that the team at Oak Harvest Financial laid out in the first half back in early January. This can be found at our website at oakharvestfg.com/2019, first-half outlook. The game show, “Let’s Call for a Stock Market Melt Up” has been quickly replaced with a new now number one game show, “Call for a 10% to 20% correction”, or “Let’s set a really big downside target in the S&P 500.”

This has happened literally in one week. How quickly can the financial press cancel or change their outlook and replace it with another emotionally fired, driven story? It literally took a weekend. Please review our last two weekly podcasts if you’d like to review our thoughts that proceeded this week’s market downturn. Both audio podcasts can be found at oakharvestfg.com/stocktalk. I’m sure that regular listeners will be glad to hear that I’m off my soapbox, no rants this week. We are now in May. We are now in the dead zone. This is the period after earnings are reported.

Stock buyback momentum has peaked at about 95 to 97% of all companies being able to buy back their stock. That number will now head towards about 5% of all companies being active as we get towards the end of June. This removes the demand for stocks and removes money flow into stocks. We laid this period out about four months ago as a short-term peak and write for a second-quarter pullback into late June. We are in the danger zone, the go slower zone, the be patient and delivered zone, but we are now closer to entering the accelerating investment zone, the buy zone, the Goldilock zone.

We actually started buying stocks for the first time in a number of weeks just yesterday and earlier this morning. However, there should be another four to six weeks of choppy to down price action in stocks, an up movement, and the bond prices and down in bond yields. As I’ve mentioned multiple times the past year, Goldilocks for stocks will be accompanied by slightly higher long-term interest rates and falling bond prices as both inflation and growth pickup. We currently continue to see that dynamic starting points on July 4th. A China deal will stimulate the second half, 2019 growth as well as 2020 growth.

This is not currently in earnings estimates for stocks, nor is it priced into the bond market. Our president will start focusing 100% of his attention on domestic issues. The combination of a China deal and an infrastructure plan should lead to accelerating growth in the fourth quarter of 2019 through the presidential election in 2020. Accelerating growth would lead to a sell-off in long bonds and a stock market acceleration up. It would lead to Goldilocks. It is particularly good for domestic small-cap stocks, international stocks, emerging market stocks, and value stocks. Most of our clients have exposure to these asset classes through holding both ETFs and dimensional fund advisors mutual funds.

As for sectors, financials, cyclical, technology, industrials, and things leveraged to acceleration and growth would benefit, that’s Goldilocks. An expansion in the stock market of groups and sectors that are leading, no longer would it be its FANG or bust, FANG being Facebook, Apple, Netflix, and Google. This has been a consistent theme the last nine years of sustained new all-time highs, breakouts, and stay outs in the S&P 500. On a final note, the new weekly segment of our podcast, the, “I don’t want to invest now” rationale and excuse segment.

This week’s newest excuse I heard is, “I don’t want to invest now because the China deal looks likely to fall apart.” Everyone, there is always uncertainty. There are always answered questions out there. Please go visit our website and read the piece penned by James McFarland or senior portfolio manager, “I don’t want to invest now because”. We are in a normal time of the year when the economy slows for two to six months, as companies digest inventory and start planning for the second half of the year and the next year out, that is why they sell in May and go away mantra usually does work most years.

However, we like to use this period of weakness to buy stocks that we see a value to harvest losses and stocks that we think we can find better prospects for the portfolio for the next 12 to 18 months and position portfolios for the next year to 18 months. In closing, if you find this content helpful, please go forward it to friends or have them give us a call at 281 822 1350. Go browse our updated website and new content, oakhavestfg.com. You shared your vision for your money with us during our meeting and we are here for you. Our main job at Oak Harvest is to have you retire only once in your life with a customized retirement planning. Many blessings, Chris Paris.

Speaker 2: The proceeding content expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, statistics and sources are not guaranteed. Content ideas and strategies discussed may not be right for your personal situation and should not be considered as personalized investment, tax or legal advice or an offer or solicitation to buy or sell securities. Investing involves the risk of loss and past performance does not guarantee future results.