Wow! What a week in stock market history. This week we saw the worst six month period for stocks in history going back to 1929. What was the cause?
We all know about the “sell in May and go away” guys. I’ve talked about this trend for years. We typically see a selloff in May as most of the traders take the summer off. I always prepare for this in early April by raising cash just after first quarter earnings announcements. This gives me plenty of cash reserves to take advantage buying opportunities in the summer slump and gain momentum going into the fall rallies.
But once every four years we find ourselves in the second year of a presidential cycle, the dreaded “Mid-term” election cycle. Consistently, this is worse than any other year. The average return’s are -1.9% for Q1and -1.7% for Q2 and Q3. (Ari Wald, Oppenheimer).
We have had our share of headwinds so far this year with Trade tariffs threatening and new regulations on Big Tech. This creates a lot of uncertainty which creates a lot of volatility in good stocks. And there is the conundrum. What is just noise out of Washington D.C. and what is a real threat to our economy and the fundamentals to the long term health of the stock market?
Here are two examples:
1. Trump recently attacked Amazon threatening a plethora of different regulations. Amazon went down in value.
2. Facebook came under fire for data breaches and the sale of members information to just about anybody who wanted to pay for it. Facebook went down in value.
In Amazon’s case, there is nothing fundamentally wrong with Amazon. It is a fantastic company with really no competitors. I call it the “Death Star” of retail. When Amazon moves into your space they OWN it. So this is just noise out of Washington.
Facebook is another story. I believe they would sell private information on their dead mother if they thought they could make a buck. There is something fundamentally wrong with a company when their CEO has to go before congress and apologize for their intentional bad behavior. Anybody remember Wells Fargo? Facebook has some fundamental problems that go all the way to the top and will affect their earnings. This is not just noise out of Washington.
The main things I am focused on, are the tariff issue and this presidential cycle. The strength of the economy is not a concern, nor the earnings picture. I never over react to noise. I go back to fundamentals and they look good. I have been taking profits and carefully re-positioning our portfolio’s to take advantage of the coming summer. I believe we will still see a low to mid-teens return this year.
Your Boring Money Manager,
Mowery Capital Management
We manage risks first
Then we buy quality
And only then do we seek to provide a reasonable return
At the time of this writing:
Dow Jones 23,932.76
S&P 500 2,604.27
Ten Year Treasury Yield 2.773%
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Sources: The Capital Group. Zacks, Seeking Alpha, CNBC, CNBC guest and contributors, Jim Cramer, Wall Street Journal, Investor’s Business Daily, and Financial Times. Special thanks to Wikipedia and MarketWatch for historical facts. If I have inadvertently missed any other sources please accept my apologies. No assurance can be made that profits will be achieved or that substantial losses will not be incurred in connection with any investment. All investments involve varying degrees of risk including loss of capital. This information should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any individual investment or strategy. PAST PERFORMANCE IS NO GUARR ANTEE OR INDICATION OF FUTURE RESULTS