Yesterday morning I wrote that the pendulum of fear -- real fear, not the media hyped “fear” used in every article associated with the White House and its policies -- among investors that is swinging from not getting caught in a dip to getting caught flat footed.
FOMO
Investors of all stripes, but especially professional managers, are going to have to explain why they missed out again. Typically, such anxiety increases dramatically with milestones, no milestone would be bigger than the Dow Jones Industrial Average making new all-time highs.
+0.13% | |
+0.27% | |
+0.04% | |
-0.18% | |
+0.33% | |
+1.70% | |
-0.14% | |
-0.09% | |
+1.07% | |
-0.95% | |
-0.26% | |
-2.17% |
Three Hurdles
The market was mixed but the message was clear yesterday.
There have been three things that gnawed at this market in 2018 and today all three were addressed and the result is very positive.
Bond Yields & Federal Reserve
Despite tariff fear dominating headlines for most of the year; the biggest hit to the market came in February as the 10-year Treasury bond yield approached 3.0%. At the time, I found it odd the street would panic at such low yield; however, the reply was how rapidly it was climbing.
We saw the two biggest point declines in history on February, and three of the four biggest decliners that month. Rates were rising and conventional wisdom was the Fed was going to be too aggressive. Interestingly the yield backed off but eventually got through three% hitting 3.12% on May 17.
Dow Deepest Dives | |
Date | Point Decline |
February 5, 2018 | -1,175 |
February 8, 2018 | -1,032 |
March 22, 2018 | -724 |
February 2, 2018 | -666 |
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Rallying Without Big Tech
Halfway through the year, an article in MarketWatch summed up how remarkable the influence of technology was for the rally – it was the entire rally.
Tech sector contributed all of the stock market gains so far in 2018 Published: July 2, 2018 5:09 p.m. ET |
The S&P Technology Sector (XLK) at that point was 102% of the entire rally and Amazon which is part of the S&P Consumer Discretionary Sector was 35% of the rally.
Many Wall Street firms got bearish this summer with the premise that sooner or later tech would stumble, and once it did money would flee stocks entirely.
Yesterday, technology stocks took it on the chin, but money rotated into other areas of the market including financials. In the last three months, five sectors have outperformed technology and the board market has held up nicely.
- Health Care +10.7%
- Utilities +9.4
- Consumer Staples +7.8%
- Real Estate +6.7%
- Consumer Discretionary +4.5%
- Technology +3.7%
It wasn’t all bad news for technology as the XLK held above its 50-day moving average and money rotated back into chip stocks.
Tariffs
I’m not dismissing tariffs or their potential impact on the economy or stock market, but all the naysayers thought the market would crash and burn when these battles began. There has been some increased volatility, but the market has been in rally mode.
Moreover, these potential headwinds could be tailwinds as we get a deal with Canada, finish up South Korea and the EU and then face down China.
Right now these are the numbers to understand;
- US Economy $20.4 trillion
- China Economy $14.0 trillion
- US Corporate Profits 2Q18 $2.0 trillion
- China Tariff taxes $32.5 billion
The market has not traded sideways since the tariff war erupted with China, it’s been up and up BIG TIME (see Dow Deepest Dives), but we want to see resolution.
I’m studying a lot of issues on how this might be resolved, including a potential Plaza Accord, which ended in a similar trade dispute with Japan.
Up in Smoke
By the way, everyone was talking about Tilray, which at one point hit $300 a share or 400% for the day. I interviewed the company’s CEO on the show and I know a lot of folks that bought the stock, I hope you took profits. The action in this stock and others underscores this will be a real area and generate billions of dollars in wealth for investors, but we are in the hype phase and went into the parabolic phase today.
Today’s Session
Don’t look now, but the market is edging higher as initial jobless claims have dipped to lowest level since November 15, 1969. The sharpest declines are from Illinois, Iowa and Kansas.
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