Weekly market update

Stocks had another solid week with the Dow gaining 2.4%, the S&P 500 was up 2.2% and the NASDAQ gained 3%. The laggard was the Russell 2000 small caps which only gained 1.8%. Despite all the bearishness that we witnessed in May, many of those same issues still linger. Throw in rising tensions in the Middle East and stocks continue to defy gravity with many of the indices moving into an overbought territory in just two short weeks.

According to the Bank of America Merrill Lynch investor survey:

  • Investors are the most bearish since the great financial crisis
  • Equity allocations saw their 2nd-biggest drop on record
  • Cash holdings increased the most since 2011
  • Global growth estimates have fallen the most since 1994

There are a lot of reasons to be bearish on equities right now:

  • No visibility, given trade war
  • Global economic backdrop continues to deteriorate
  • The President’s tweets control the markets
  • Brexit
  • Inverted curve
  • The likelihood that the FED is going to now cut rates
  • The list just goes on and on

Yet we have seen the S&P 500 notch a new closing high and the Dow set a new intra-day high.

Last week the FED held interest rates steady but they changed their tone by saying that trade tensions and benign inflation concerns have risen and they stand ready to act, i.e., cut rates. Following those comments, yields on the 10-year U.S. Treasury fell below 2% for the first time since the fall of 2016.

Adding insult to injury, on the economic front, we saw services and manufacturing PMIs continue to deteriorate—the manufacturing PMIs were the lowest since 2009.

The Empire State manufacturing index fell from 17.8 in March to a negative 8.6% in May—that’s the biggest drop on record, by the way, and the first negative reading in over 2 years.

Existing home sales tumbled YoY for the 15th month—that’s the worst run since the housing crisis.

Makes perfect since we would be sitting at all-time highs—not….

This week, all eyes will be on Osaka Japan as world leaders come together at the G-20 meetings and President Trump and his Chinese counterpart will be meeting to discuss, what else—Trade. So, this week will be an interesting one and we’ll see if stocks continue to march higher. Stay tuned and we’ll keep you posted.

Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
June 24, 2019

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