Last time I wrote you about what I believed was causing the downward movement of the market. I mentioned 5 things, China, program selling, earning season, headlines, rapid rising interest rates. All have proven to be correct. I also said I believed the market was searching for a bottom. This also is true.
Currently I am hearing talk of a “Late Cycle”. A “Late Cycle” simply means the economy is in the last stages of economic growth where things are good BUT cannot get better. This thinking causes the market to start the day off up then reverses to the downside. This is Cramer’s thinking and I think he is spot on. As I have said many times when the Fed raises rates it is always negative for the market. That said, I have also said we have never raised rates from Zero before. Thant made me believe the FED had some room to raise rates. My greatest fear is that the FED will not stop son enough and go too far. I believe this is also the markets greatest fear. The economy is definitely strong enough to handle some rate hikes. But it can only take so much before it cause a slowdown and possibly a recession.
When I see good companies like Home Depot and Walmart record excellent earnings and go up on the news then almost immediately reverse and head down that signals that there may be a slowdown in the future. It says, as Cramer pointed out, that things are good but can’t get much better.
Obviously if the FED stops raising rates and doesn’t go too far and a China deal gets done then the economy can get better and the markets will go higher. INTERESTINGLY AS I AM WRITING THIS VERY MINUTES BREAKING HEADLINES FROM THE PRESIDENT SAYS HE WANTS TO FINISH THE TRADE DEAL WITH CHINA. CHINA WANTS TO MKE A DEAL! WOW! The S&P just went straight up! Let’s see if it holds.
FED chairman Powell says that he takes the risks of a slowdown and overheating very seriously on both ends of the spectrum. It was encouraging to hear him recognize the global slowdown and the implications to the US. Dallas FED president Robert Kaplan ask questions that led Charman Powell to walk back some earlier comments on rate hikes. I like this “Dovish” tone. “There are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that’s what we’re on the verge of here. That’s what the markets are saying. That’s what the CEOs are worried about offline,” Cramer observed.
If the FED changes course and China is worked out the market will rocket higher. If not we will have more downside. I have been concerned since August and have been raising cash in the portfolios for a while. I will continue to raise cash in equity portfolios and default on the safe side, possibly giving up top side growth to protect the downside even to the point of taking some short term losses.
I believe the best course of action at this time is to play it safe, minimize losses and wait it out.
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 25,465.94
S&P 500 2,734.31
Two Year Treasury Yield 2.812%
Five Year Treasury Yield 2.89%
Ten Year Treasury Yield 3.07%
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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
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