06.10.2019 – Goldilocks Has Returned…After 18 Months Off

By Chris Perras, CIO

Equity markets rallied last week amid expectations that the Fed will start cutting rates in 2h2019. The S&P 500 rose almost 4.5%, led by cyclical groups including materials, technology and industrials. The ECB delayed its own rate hike agenda, and European markets rallied strongly with Germany and France posting gains of around 3%.

Friday’s payrolls report was underwhelming as nonfarm payrolls rose only 75,000 in May. Wage growth also decelerated despite the jobless rate holding at a near half-century low.

The SP500 is up about 35bps this morning trading on positive news that U.S. tariffs on Mexico were averted and that United Technologies and Raytheon ware merging. Long term Treasury yields are up about 5 bps across the curve.  This is a good thing for the overall stock market!!!!

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.

In OHFG’s opinion, Goldilocks has returned to the party after taking 18 months off.  If you want a date or two that we will look back on in a few years, mark May 31 and June 3rd, 2019 on the calendar.  The third and final “bear”, lower trending long term interest rates, overstayed its welcome then and that should mark the lows in long term bond yields for quite some time.

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 in the next 2 weeks 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.

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.