Hey Folks, well, we are half-way thru the year and it has brought us very strong record setting results! But all is not as it appears so we must be forever vigilant in our expectations of forward price action.
This Week’s Sound Bites:
• The first half of the year is in the books! Performance was strong, S&P up 17.35%; NASDAQ up 20.66%; DOW up 14.03%; RUT up 16.17%…yet if you include 2018 performance then the numbers change a good deal; S&P -1.75%; NASDAQ -3.67; DOW -2.5%; RUT -9.48%….to close out the month of June we saw the S&P up 6.9% for the best June since 1955…we also see the Debt markets via US Treasuries turning in a great performance as well in the first half of this year…30 Yr. Bonds up 6.34% with Yields on the 10 Yr. dropping 32.33% to close at 2.00%. So, the markets are showing an interesting take on current economic behavior…however, since 2018 we’ve seen the S&P performance as relatively flat…and earnings guidance for the second half of 2019 is lower so the reminder of year performance will not measure up compared to first half of year…and there are many potential pitfalls that are just around the corner…
• This of course puts the FEDs in a pickle with the July Fed Funds forecast of almost 100% for at least a 25-bps rate cut…this is currently priced into current market action and over 3 rate cuts for the remainder of this year is factored into the current market environment…Anything short of this could cause price action to move lower…and inflation, on a Global macro sense, has been on a deflationary bent for the past 20 years; –mostly with the rise of China and with overcapacity in off shore manufacturing bringing in cheaper goods, it’s been difficult to bring in higher inflation…and when debt is added to the system, you can easily create over capacity on the front end…this in turn makes it even more difficult to maintain higher levels of demand with more and more credit as we’ve been seeing for the past few years…this makes it increasingly difficult to keep price action moving higher which then sets up for a possible recessionary environment looking out over the horizon…
• Net, net, over the past 10 years, from the start of the massive debt build-up in 2009 to present day, the S&P has returned on average about 15% per year compounded…this allowed Index Funds to rise in strength and take over a larger and large percentage of investable funds…however, going forward the annualized yield of the S&P is forecasted to drop significantly to 3% to 5% annually and these lower returns will tend to shift money from the Index Funds to more actively managed funds in search of Yield…so the next decade promises us some interesting opportunities and unexpected performance results…
• Remember the phrase, “Irrational Exuberance” coined by Alan Greenspan in 1996, showed the FOMO trade could continue for another 4 years before the dot.com bubble brought things to an end…in many respects we’re seeing this today with Equity markets moving to All Time Highs on the backdrop of slowing Global Economic Growth supported be cheap money…and Austria recently issued a 100 Yr. Bond for 2.1% which, all across Europe and around the planet with over $13 Trillion of Gov Debt still holding negative yields, seems like a deal…so even in the land of the blind, even the One-Eyed is King…I am only surprised that Trump, who is the King of managing (manipulating) Debt will not persuade the US Treasury to figure out a way to lock in low US rates for the next 100 Yrs….if he does that, it takes off the table the prospects of rising rates doing dramatic harm to the US Budget deficit…
Now enjoy this Weekly Round;
Don’t Be a Rat Brain Trader – Be the Red Striped Zebra !!
Trade Smart
hpb
