“Been there Done That” – 2015/16 Replay
By Chris Perras, CIO
Friday’s 1.9% pullback left the market off 0.8% last week, though the SP500 is still up 11.7% YTD. 100% of the markets drop happened the second half of Thursday-Friday on the back of concerns of slowing global growth, a strong rally in bond markets globally, and a flight to quality. The 10-year Treasury yield rallied 15 basis points lower last week. The rate curve flattened and “inverted” for the first time since mid-2007. This “economic forecasting sign” was trumpeted non-stop by the financial press as forecasting a recession soon. As we’ve said all year, we disagree with the recession premise. However, as we have discussed for 3-4 weeks, we are expecting a “pause and pullback” in stocks in the 2q2019 of 5-6% during which time we will likely get more aggressive in our growth profile.
On a positive note, U.S. political uncertainty was dialed back this weekend after the Mueller report found no evidence of collusion with Russia. It was inconclusive on the obstruction of justice charges. Additionally, high-level trade talks between the U.S. and China resume this week, with a target date of a deal by late April. The housing market is already showing renewed signs of life, with existing home sales rising 12% higher last month and housing starts jumping 19% in January. We see this trend accelerating in 2h19-2020 due to the Federal Reserve’s interest rate policy pause. We purchased Home Depot stock late in the 4q18 and early 2019 in anticipation of an upturn in the housing industry and domestic economy in 2h2019.
In the news, an eloquently written piece (as always) penned by Mohamed A. El-Erian.” is very worthwhile reading. Entitled “There’s Danger in Misreading the Inverted Yield Curve: It doesn’t necessarily signal that a recession is on the way,” it can be found at https://www.bloomberg.com/opinion/articles/2019-03-24/inverted-yield-curve-doesn-t-necessarily-mean-recession-is-nigh
We continue to believe that the 2h2019 and 2020 will be much more positive than others are forecasting. 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 here.
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.