We’ve seen the market move all over the place in the past couple of weeks, mostly down. So what is really Happening, Fritz? I don’t have a clue! I’m on a beach in Maui holding a drink with a little umbrella in it. Have I missed anything?
TOTALLY JOKING!!! I just wanted to see if anyone was really reading these things.
The recent downward movement is due to a confluence of many different things. I’m going to go over what I believe are the top five.
1. China – The Chinese markets and economy are plummeting. China’s economic growth slowed to 6.5% year-over-year the third quarter making the weakest pace since Q1 of 2009. Tis is due to the trade pressures from the U.S. The Chinese FED pledged they were prepared to take measures to help ease firms financing problems and encourage banks to boost lending to private firms. It seems that the trade war will be won by who can hold their breath the longest, China or U.S. Right now it’s looking like the U.S. can.
2. Fears of rapidly rising rates have really sent shock waves through the markets. This is a very real fear and I am watching it closely. As I mentioned in past “Bottom Lines”, if the FED moves too aggressively it would invert the yield curve sending the U.S. into a recession. The FED has a lot of room to move since real rate of inflation is at 0.25%. But if they don’t give the market some breathing room and go slow it spells recession.
3. Programmed Selling – this demon has caused much of the turmoil in the past two weeks. Essentially there are algorithms that trigger selling when the markets or certain stocks or ETF’s hit different prices, which causes the market to go down, which causes other algorithms to sell which causes the market to go down further, and so on and so on. This is mindless trading that force people to sell even if they didn’t want to. Too many people (millennials) want to throw their money into the market not think about it and let a computer think for them. Obviously this is a bad choice.
4. Earning Season – We are in the peak of corporate reporting season and this always adds volatility to the markets. A negative surprise like Home Depot (HD) reported sent the markets reeling just two days ago. On the flip side when companies report great earnings like Progressive Corp. did can have the opposite effect.
5. Headlines – We are “News Junkies”. We love to hear headlines and we love to hear every talking head opine on every headline. This is just one example, 1There are many unanswered questions surrounding the Saudi journalist alleged and apparent murder. Mr. Kashoggi was last seen entering Saudi offices and never heard from again. President Trump is on record warning of “severe” consequences if in fact he was murdered. Well the markets didn’t react well to the report or President Trump’s warning. This has absolutely nothing to do with our stock market in the long term. We possibly could lose some military arms sales in the short term but probably not. The market simply over reacted.
Don’t get sidetracked by worry. I believe the market is searching for a bottom. It certainly looks like it is trying to bottom but we won’t know for sure until it starts its climb back up, which it will. The economy is strong and people are working. Next time you go out to dinner play a game with your date and see who can count more “help wanted” signs. They are everywhere.
We will have a better feel for the stock market once we get a little further into earnings season next week. I believe the reports will be good. But more importantly I will be listening to the forward looking comments from America’s CEO’s as to what they think the future looks like.
I suggest you go to Maui and sit on a beach holding a drink with a little umbrella and stop worrying.
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 25,505,.94
S&P 500 2,779.31
Two Year Treasury Yield 2.91%
Five Year Treasury Yield 3.05%
Ten Year Treasury Yield 3.20%
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