Last week was another rough week for the market amid more signs that the economy is strong enough to carry momentum into 2019. Moreover, this growth comes with few signs of inflation. In other words, this really is a Goldilocks economy. And yet, the stock market runs from too hot, to too cold, to complete confusion at each turn. For now, all the major indices are at critical support levels that must hold.
The S&P 500 was able to rally from this level twice earlier in the year. It will be a much more difficult task this time.
The irony is we could be on the cusp of another quarter of 3.0% Gross Domestic Product (GDP) growth. Three consecutive quarters above 3.0% is something most economists said were a relic of the past for several reasons, including our aging population, lower birth rate, and vanishing productivity gains. The incongruity there is that futurists predict the next wave of tech innovations will help the global GDP go parabolic.
For now, this would be a monumental achievement.
Conundrum
Which one is right: the stock market or the economic wave that doesn't seem to be ebbing? I think the market’s role as a harbinger of the future is still intact. However, it is skewed day to day by so many non-financial inputs from algorithms and program trading to domestic and international political headlines.
Grand global arrangements are in trouble, including the grand European Union (EU) experiment.
In the United States, there is no doubt Mueller anxiety is creeping into the market as the probe probably will conclude in early 2019. If it’s about possible campaign finance violations and not about the Russian collusion, it would be a mistake for Democrats to go for the jugular.
The market would be distracted, and the economy could suffer as well. I don’t think the elders in the Democratic party would allow this to happen. However, every single name running in 2020 wants it to happen, so we’ll see.
What History Says
The last time there was a 10% market decline, coupled with a 3% quarterly growth, the market turned around and soared.
That was the second quarter of 2010 when the index hit 1,022 on June 28, 2010. It rallied 20% for the remainder of the year. In fact, that June low was the low point period – the index has never looked back. Of course, the rally was younger then, but it doesn't have to expire from old age.
Today’s session
Dow futures have been eroding all morning and are now calling for a loss of 150 points on the open. Losses accelerated after the release of the Empire Manufacturing survey, which came in worse than expected at 10.9 vs. the prior reading of 23.30 and the consensus of 20.00.
Overseas: Europe is weak, while Japan and Australia are trading higher.
- Stoxx Europe 600 -0.77%
- UK: FTSE -0.55%
- Australia ASX +1.0%
- Japan: Nikkei 225 +0.62%
Shares of Jack in the Box (JACK) are trading higher by close to 6%, @ 85.00, after releasing a statement saying the company is exploring a range of strategic and financing alternatives to maximize shareholder value. JACK has had discussions with potential buyers. The company issued a similar statement at the end of Novembers. Maybe a deal is near?
Healthcare stocks are under pressure after Friday’s ruling by U.S. District Judge Reed O’Connor that the Affordable Care Act was unconstitutional. HCA Healthcare (HCA), Tenet Healthcare (THC) and Centene (CNC) are all trading down between 6-8% in pre-market trading.
Goldman Sachs (GS) is trading lower by approximately 2% in pre-market trading after Malaysia’s Attorney General Tommy Thomas filed criminal charges against GS and two of its former employees in connection with a money laundering and corruption probe.
WSS Portfolio Approach
We are crunching numbers on a few ideas. I am not sure if we are going to close yet, but it’s important everyone has a fair amount of cash on hand. If you are not currently a Hotline subscriber, click here to get started today.
Communication Services | Consumer Discretionary | Consumer Staples | Energy | Financials | Health Care |
2 | 2 | 1 | 1 | 1 | 1 |
Industrials | Materials | Real Estate | Technology | Utilities | Cash |
3 | 4 | 0 | 1 | 0 | 4 |
Important Note:
I’m on vacation this week and will chime in when I can. My team will get our daily commentaries out.
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