November 20, 2018
The markets really tried to rally early in November. FAIL.
After being down nearly 2% today with all 11 sectors being negative, the S&P 500 has now joined the rest of the world in the red for the year 2018. On top of that, bonds are also down – and so is gold, real estate and even Bitcoin. There is nowhere to hide.
In my last blog, I focused on the underlying (lack of) health of the economy and the consequence of rising rates on the massive collective debt-load the world has accumulated over the past 10 (or so) years. Since then (11/5), it seems the world has turned a little more bearish. We think rightly so. We continue to hold far more cash than normal across all portfolios even after making minor investments into our best ideas ahead of the recent election results.
Now, major indexes are back to trading under the 200-day moving averages and it is increasingly likely that we are headed full speed into the next bear market – but we are not there yet. It’s not time to sell everything. Many signals we are receiving from the market – like junk bonds breaking down to prices last seen in 2016, for example – are concerning, but we have a sound plan in place that will continue to “automatically” raise cash if the markets trend lower and into a bear market, meanwhile we are allocating small amounts of capital to fundamentally sound companies while they are “on sale”.
Looking ahead, we have the G20 Argentina meeting in 9 days. President Trump and President Xi (of China) are scheduled to hold side-bar conversations regarding the ongoing trade skirmish… (Nobody wants to call it a trade war yet) If there were any 2 people in the world who could decide to resolve the situation these are the guys – but we won’t be holding our breath. These things tend to play out over longer periods of time and both men appear to feel supported by their base.
Beyond that, the Federal Reserve Bank meets again December 18-19 where they are expected to raise the overnight lending rate by another 0.25%. What is less clear is what the folks at the Fed will say about the future path of rate hikes – the market will be watching very closely. The calls for the Fed to skip the hike this December are getting louder (Wall Street would react favorably). But again, we aren’t holding our breath on that either.
If you are losing sleep over the performance of your account, or the markets in general – we beg you to complete this risk profile and schedule time to meet with us, because you are likely invested too heavily in stocks.
But if you aren't losing any sleep, we aren't either.
PS: Happy Thanksgiving! I hope that you find some time to spend with your family - laughing out loud - like I recently got to do with mine.
Shane Fleury, CIO
Elevate Capital Advisors
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