(Know when to hold them)
Tariffs have been delayed to December with renewed hopes by President Trump that some agreement would be made with China. September 1st additional tariffs were to kick in. August presented additional slowing economic data globally that resulted in multiple governments seeing their bond rates drop. Data shows that it is the consumer, you and I, that are propping up the country with our spending. It seems to be in quite a substantial way to offsetting slowing manufacturing, housing and service sectors. By comparison, the United States is doing very well despite this compared to other countries.
Now don’t get over-excited and jump back in the market with both feet. Just like when the market is panicking and I remind you to not do the same, it is my responsibility to do the same and give advice when there is mania to jump back in. Yes, the market is rallying and interest rates are back above their low. I suspect the market is going to shrug a slowing economy and interest rate inversion off. After all, a recession happens on the average about 22 months after an inversion. We have time, right?
When looking at the data there is still concern about slowing profits for companies and the continued lowering of projected earnings. This week started with racing back up toward the all-time highs. Why? Nothing has changed. If there was an agreement with China, then maybe. If there was an increase in corporate profits then, yes. Even if there were a bump in inflation, it would be a reason. Are there any positive headwinds?
It seems there is a positive discussion regarding the economy. Recently several companies who were labeled as companies that would be hurt by tariffs actually show in their latest corporate earnings that they haven’t been. Apple and Walmart both had good earnings and have rallied strongly lifting their indices. This week economists meet for the annual event in Jackson Hole, Wyoming. Right before this event, several of them upgraded their projected GDP to above 2%. They will release why soon.
With the market giving us head fakes weekly, each direction looks like a trap. This is where discipline, a plan, and data comes in. Don’t get emotional or stressed out. I would like to see a 12-17% move off the highs before starting to add to positions. Right now, it appears there is double the risk to the downside than to the upside. Let the market gain a direction before evaluating your next steps. One measurable that I am watching is the Volatility Index, VIX. Normally when the market rally, it will drop. It should typically have a negative correlation to the market. In recent weeks, it hasn’t. When the market rally, it has not been falling and holding its ground. If this continues, there is more downside we believe soon. If it falls back off, then the market should move higher for the short term. Areas we are monitoring closely is oil and copper. These are both at twelve months, if not longer, lows. It appears oil is finally bottoming out poised to rally.
As Kenny Rogers sings, “Know when to hold’em, known when to fold’em. Don’t gamble in the market.
Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC
For questions or investment topics, please email me [email protected]
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