Rotation Nation – 2q19 Pause and/or Pullback
By Chris Perras, CIO
The S&P 500 rose 0.5% last week to extend its year-to-date gain to 16%, ending around 2905, a little beyond our 2q19 projected range of 2880-2900. We are back to flat with last September. Within Financials, JP Morgan topped estimates on Friday and was up almost 5%. Wells Fargo reported weak guidance and continues its multi-year underwhelming performance. Oak Harvest does not believe Wells Fargo represents a strong investment at this time.
Global equity markets were mixed last week with the NASDAQ up +0.6%. Most sectors were higher with financials, tech, and consumer discretionary leading markets. Health care and materials, particularly gold, were the laggards. Disney had an analyst day where they launched their direct to consumer offering at $6.99/month. It was well received by analysts and the market and the stock was up 11% to $130 on Friday. The firm holds a positive outlook on Disney’s stock.
The 10-year Treasury yield is 2.56% after rising 6 bps last week. Last Friday was the first “Goldilock’s” day in almost 15 months (rising long rates/steepening yield curve, lower dollar, and higher oil) and why the market regained the 2900 level. While we expect many more of these days in the 2nd half 2019 and 2020, we do not expect many more of them in the 2q19. The financial markets are likely to find an excuse to pause and pullback. While the U.S./China talks seem to be on the home stretch, the relationship between the U.S. and Europe is worsening. The U.S. threatened to impose tariffs on $11billion worth of European goods last week, and the EU retaliated by its threatening its own tariffs. These will have minor effects long term effects on the markets.
We continue to believe that the 2h2019 and 2020 will be much more positive than others are forecasting. We will use any second quarter weakness in stocks and strength in bonds to continue to shift positions toward a second half acceleration in the economy and stock market. We will be posting our outlook closer to mid-year but expect us to continue to make some adjustments in advance of the second half. Until the 2h2019, “Rotation Nation” will be the general rule. Our first half 2019 market outlook and commentary can be found at https://oakharvestfg.com/2019-first-half-outlook/.
Sources for data include Bloomberg, Investor’s Business Daily, and other publicly available news sources. Weekly market updates contain general information and the views of Oak Harvest Investment Services. Content should not be regarded as personalized investment advice. Views and opinions expressed may change without notice. 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.