06.03.2019 – Kenny Loggins Market: “This is It”

By Chris Perras, CIO

The S&P 500 fell 2.6% last week on growing trade tensions.  This extended its decline from its late April early May high to 6.6%. The year-to-date gain has slipped below 10%. As we have said since early January, we expected a late second quarter pullback in the market of up to 6.5% (Ok, we missed by a bit.) as bonds had one last rally left in them on slower global growth fears.

The energy sector, which we continue to have little exposure to, was the worst performer last week with a 4.1% decline. Government bond markets rallied last week with the 10-year Treasury yield down to about 2.10% after dropping 19 basis points lower last week. President Trump’s Mexican tariff tweet on Thursday night was the main factor in the panic buying at the end of the week.

China’s stock market rose 1% last week to sit at the top of world charts with a year to date gain of 21%. Brazil, the other major emerging market besides India, has rallied 13.5% the last two weeks.

As we’ve said all year, Goldilocks will return.  It returns as 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.

Good things come to those who wait.  The team at OHFG is no longer waiting.  We are investing.  Having patiently waited through the gibberish talk of Goldilocks and melt-ups in late April and early May, we are starting to accelerate our equity investments for new clients as well as old ones.  We have already seen two “Goldilocks” periods the last 10 years and they both have started during almost precisely the same kind of economic uncertainty and slowdowns.  The first was a “nowhere” market from 2011 through June 2012 that then was followed by a “Goldilocks” market producing a 55% gain in the SP500 over the next two years. The second period was a “nowhere” market from 2015 through June 2016 that was then followed by a gain of 45% over the next two+ years.  The 2015 to June 2016 period saw the 10-year Treasury bond rallying almost EXACTLY the same amount into its low yield in June of 2016, 110 basis points.

Goldilocks returns as long bond yields rise.  The set up for a true “melt-up” is President Trump pivoting from negotiating with China to focusing on domestic growth and expansion for the Presidential election in November of 2020.  We are now buying stocks for our clients more aggressively.

We aren’t perfect, nor will we ever be!  We can only manage risk and return for our clients and capitalize on other people’s emotional fear and panic.  Our knowledge that the stock market grows with the general economy over longer periods of time holds us fast to our conviction of investing when others are panicking. The market is doing almost precisely what we laid out on January 4th of this year in our first half outlook which can be found at https://oakharvestfg.com/2019-first-half-outlook/.

Our second half outlook will be released before July 4th but expect it to be VERY optimistic on the economy and stock market for the second half of 2019 through 2020.  We might even provide our readers a “melt-up” target for the market for late 2020 and early 2021 should our growth and stock market focused President return to those goals and get re-elected in 2020.

Please Review Kenny Loggins lyrics!

(This is it)
Make no mistake where you are
(This is it)
You’re goin’ no further
(This is it)
Until it’s over and done
(This is it)
One way or another
(This is it)
(No one can tell what the future holds)
(This is it)
Your back’s to the corner
(This is it)
(You make the choice of how it goes)
(This is it)
The waiting is over
(This is it)
(No one can tell what the future holds)
(This is it)
You’re goin’ no further
(This is it)

 

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.

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