By Chris Perras, CIO
U.S. markets were closed Monday for the Memorial Day holiday. Last week, the S&P 500 dropped 1.2% to lower its year-to-date gain to 12.7%. (albeit this is a rigged number given the markets 20% down move in late 4th quarter 2018 setting the bar for the first half 2019 very low). The overall stock market has gone nowhere since the beginning of 2018. Spoiler alert, this is normal for bull markets! Stretches of 15 to 18 months of sideways to down is normal market action!
The 10-year Treasury yield fell 7 bps to about 2.30% extending its 2019 slide to over 35 bps. Weaker U.S. data and heated U.S./China trade talk continue to weigh on investor sentiment.
As we’ve said all year, Goldilocks will not return until long bond Treasury yields trough! Why? Because stock markets like slightly higher inflation and growth, at the same time. They like steepening yield curves, not flattening ones. Sentiment indicators are now getting negative (that’s positive for stocks) and this Friday is a month end payday, so we are expecting a bounce in stocks the next 2 weeks.
The financial press will make up their own reasons, OHFG readers and listeners know that these moves have been in the cards since Jan 4th. See our first half outlook at https://oakharvestfg.com/2019-first-half-outlook/. The post Easter stock market downturn/slowdown/pullback, call it whatever you want, is not over, but it is already creating long term value for the second half in many groups and single stocks.
Most of the recent economic data, including retail and home sales, industrial production and durable goods orders, have pointed toward slowing economic momentum. This is normal in the 2nd and 3rd quarters! Regardless of the current reasons. The trade war is starting to hurt spending activity. Further escalation in protectionism could further slow summer growth.
However, good things come to those who wait. Currently, the team at OHFG believes that the second half of 2019 will surprise to the upside (particularly 4th quarter growth) and the year of 2020 is likely to be far better than anyone is predicting. All that is required for “the three bears to hibernate”, “goldilocks” to return, and the stage be set for a true “melt-up” is President Trump to pivot from negotiating with China to focusing on domestic growth and expansion for the 2020 Presidential election in November of 2020.
Weekly market updates contain general information and express the views of Oak Harvest Investment Services. Data and information cited is believed to be reliable at the time of creation, but is not guaranteed. Content should not be regarded as personalized investment advice. Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Past performance is not indicative of future results. Investing involves the risk of loss.