06.24.2019 – The Federal Reserve Formalizes What We Already Knew

By Chris Perras, CIO

The SP500 rose back to 2950 and a marginal new all-time high pushed by a more dovish Federal Reserve last Wednesday, quarter end short covering, and bear market option market positioning. Materials rose over 5% on the back of gold and oil prices, caused by a lower dollar, a dovish Fed, and Middle Eastern tensions in the Persian Gulf. Consumer staples, telecom and health care all declined as longer maturity Treasuries rose in price. While most market pundits continue to recommend so-called “safer” assets and groups, these areas peaked relative to the market almost 4 weeks ago.

Emerging market currencies led foreign currency gains against the dollar. Treasury bond yields rose slightly at the end of last week, off 18-month lows, with the 10-year back to close to 2.10% on Friday. On the back of a continued dovish Federal Reserve, Bitcoin rose back above $10,000, once again proving out our theory that the “asset” is currently little more than a leveraged play on the Federal easing and tightening cycles. While we do not own it for clients, we have discussed our upside target to Bitcoin since January when it was parked below $3500 and the Federal Reserve just started talking dovishly. Give us a call at 281-822-1350 if you want to discuss it.

We reiterate, as we have for over a year, the cycle of 2018-2019 is playing out almost EXACTLY like 2015-2016. We look at another similarity, corporate earnings. FactSet’s latest earnings report noted S&P 500 earnings is now expected to decline 2.6% in second quarter 2019. It will mark the first time the index has reported two straight quarters of year over year earnings declines since? Anyone? Anyone? Q1 and Q2 of 2016. FactSet also noted that it will also mark largest year to year decline in earnings since the 3.2% contraction in? Anyone? Anyone? Q2 2016. The S&P 500 has not seen three consecutive earnings declines since? Anyone? Anyone? Q4 2015 though Q2 2016. Hmm, the team at Oak Harvest sees a pattern developing.

This second part of our second half 2019 outlook was released via email and podcast on our website last Friday andn along with Part one of our outlook, can be now found HERE ONLY for the next week. Moreover, we provide our readers an early look into the Optimistic and Pessimistic cases for 2020. The “Goldilocks + Go-Go-dilocks+ melt-up” scenario for the market for 2020 and early 2021 should our growth and stock market focused President Trump return to those goals and get re-elected in November of 2020. Alternatively, the “3 Bears Return” pessimistic outcome is also addressed.

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.