Many investors seem braced for turbulence ahead and are in a defensive mode. The headline news seems so pessimistic. Inverted yield curve, crashing oil prices, and the Chinese tariffs and their negative effects on corporate profits much less what happens if tariffs go in effect on Mexico. But stocks remain resilient and junk bonds but 3/4% (0.75%) from all time highs. The later especially makes no sense if you believe all the experts who keep predicting the next crisis will come from that segment of the market. True, rates have moved lower and the Fed is expected to lower Fed funds in July or September. But isn’t that good news already baked into the bond market.
I would think knowing how counterintuitive investing/trading can be that new highs may be ahead for the S&P. But this may be all mute with tomorrow’s employment report providing its usual fireworks and providing more clarity. Holding same funds mentioned last week except have added a junk bond fund and ready to really ramp up there if necessary.
Comments
ADP report from a few days ago suggests latest add to new jobs will be about 27,000;
which is a way down in the mud number. ADP's numbers are generally close to being correct against government numbers.
This number should be baked into the mix, too.
Yup, a lot of hot money traveling every which way..........
You're well aware of the continued strength of Treasury bond issues, too; as equity's move higher at the same time. Big bets ,going in both directions; of near term outcomes of government policies.
Jim Morrison, The Doors song; still applies to the markets since the melt.........
"Strange Days" have found us.
Take care,
Catch
@RandiVooDoo: Are you a day trader or investor ?
Derf
No real "bargains" out there right now.
Feels like this market is being propped up by the belief that Trump won't let it fall into a ditch before the 2020 elections (aka the "Trump Put"). Not sure that is something I'd hang my hat on. He loves him some Tariffs, and you can't have it both ways "Mr. president".
Don't have crystal ball. But bought lots past few days vppcx vgstx schwabhealtcarefund... Bought oil bond Last wk and vde vwo
Hope tariffs stuff pass soon USA China USSR MEXICO kissing after
Economists polled by MarketWatch said they expect the U.S. economy to add 185,000 new jobs in May. For junk bonds, a weaker-than-expected jobs reading might just be the tonic the sector needs for a more sustained rally.
“If jobs start to go to 100k or below, it could possibly force the hands of the Fed sooner,” Thanos Bardas, portfolio manager at Neuberger Berman, told MarketWatch.
@_davidrmoran - hi sir... Too much volatility and unknowns/variables especially w crazy potus in wh messing everything up... Wish it all end may bring short term smooth sailing /peace and may favor markets conditions (until next event comes)Isn’t that always the case? We as investors tend to focus more on the potential for loss more than on longer term gains. You can go back 5 or 10 years and find people “going to cash”, “harvesting profits” or “adding some dry powder.” - Same old ... Same old ...
“The headline news seems so pessimistic.”
Journalism thrives on the “sensational”. That’s how they attract viewers, readers and clicks on their websites. But it’s not all bear case out there. Maybe we just pay more attention to the bears?
“Inverted yield curve” - Often a precursor of recession. Tends to lead by 6 months to a year. But in an era of “wacko” 2% on 10-year Treasuries, the invert may not be the reliable indicator of the past. Still, ignore it at your own peril.
“crashing oil prices ... “ Perfect example of media over-hype. Oil’s had a great run since it bottomed at $26 three years ago. So a 10% - 20% pullback is normal in any market.
“Chinese tariffs and their negative effects on corporate profits much less what happens if tariffs go in effect on Mexico” A tariff is (plain and simple) a tax - coming out of consumers’ pockets and going into government coffers. And, generally speaking, raising taxes quickly is a good way to tank an economy.
“But stocks remain resilient ...”
The Dow and S&P have gone nowhere in a year. And the NASDAQ is probably lower. But of course there are many winners that bucked the trend.
“junk bonds but 3/4% (0.75%) from all time highs”.
Tight spreads should be a warning that risk appetite is reaching dangerous levels. A better time to buy riskier bonds is when the spread is wider. @Junkster understands this better than I do.
“The later (narrow spreads) especially makes no sense if you believe all the experts who keep predicting the next crisis will come from that segment of the market.” To the contrary ... “reaching for yield“ is sometimes an indication of over-exuberance. Comes with the territory. However, the larger factor here may be the ridiculously low yields on investment grade debt. If you need income, there’s really no place to go but into higher yielding securities.
“rates have moved lower”
True. And 2% for locking-up your money for 10 years makes no sense unless you are factoring in a major economic slowdown and declining value for risk assets.
“the Fed is expected to lower Fed funds in July or September.”
Likely the Fed is reacting to the political arm-twisting. If they lower rates it should goose the economy for a bit longer. But could exacerbate the next downturn when it finally arrives.
“But isn’t that good news already baked into the bond market?”
Yep - The big money (often smart money) is usually a few steps ahead of the rest of us. And the data they have (can afford access to) far exceeds what you and I have at our disposal. Also, while insider trading is illegal, it’s not unheard of.
“I would think knowing how counterintuitive investing/trading can be that new highs may be ahead for the S&P. “
No way to tell. But unless you assume these indexes always reflect rational decision making executed by always rational investors (I don’t think they do) why dwell on where the index will be in six months?
“But this may be all mute with tomorrow’s employment report providing its usual fireworks ....”
You nailed that one. Bloomberg and the others are all over this story.
“... and providing more clarity”.
It’s hard for me to understand how one payroll report provides much clarity on anything. It might. But it might also just reflect the effect of weather on consumer spending in many parts of the country.
Steady as she goes. Tune out the noise.
We can't predict the short-term, so why bother.
@Hank, great post!
But here’s my take on risk exposure / market timing:
- Depends on what you’re buying or holding. Treat your equity or high yield stake as one part of a wider investment universe. Don’t overlook investing in a home, maintaining a cash reserve, having a pension or annuity for steady income, investing in your own business or education, etc.
- Depends on your time horizon. For a 25 year-old who won’t need the money for 40 years I think putting 100% in a good global growth fund makes a lot of sense. He / she has time to ride out several market cycles. For a retiree I’d suggest a more conservative approach.
- Depends on your skill set and past experience. Some people have a knack for timing various types of markets. If you’re good at that (only you would know) go for it. However, for most of us, market timing is a somewhat flawed endeavor. The reason may be that markets can remain irrational longer than most of us can remain solvent. Another reason might be that it’s pretty hard to sort out the really pertinent facts from all the noise coming at us from many different directions.
- Depends on your own tolerance for risk. That’s not just your emotional make-up, but also how soon you may need the money and what you intend to do with it. For some of retirement age, an all bonds and cash approach might make sense. It should protect against large or unexpected losses. But it might not protect against rising costs of living or afford the life style one might prefer.
Regards,
Ted
My issue is related to the last item you just mentioned, RISK TOLERANCE. A lot of investors think they can ride out a bear market (or even just a bad correction). But many of those investors turn out to be wrong. Investing is so emotional for many of us. Its hard to sit by and watch your Account Balance go down the tubes. Its easy to say "oh yeah, I can handle it". Hard to do.
As an official "chicken little", I've (incorrectly) gone to cash more often than I want to admit over the years. Though I am shy of my 50s, I am personally still all about preservation of capital. Combine this president, with his "Tariff policies", alongside a very, very long bull market...... and I am once again a "chicken little". I own some bonds, which also seem inflated but are riding a wave for now, and I will build up my VWINX holding, but I am mostly in CASH.
This time, it looks like I have an awful lot of company. I believe Cash was the best Asset class of 2018. Will it come in 1st again in 2019? Doubtful.
And so we gamble.
P.S. I'll keep at least one of my eyes wide open from now on.
https://www.nytimes.com/2019/06/08/us/politics/trump-mexico-deal-tariffs.html
Somehow, the markets refuse to fall......and somehow, Trump manages to avoid prison time (at least, for now).
Maybe it really is just better to play along like Alfred E. Neuman. Whistle as you walk by the graveyard....without a worry. "Trump will prop it up because he wants to win in 2020." That might buy us another few quarters.
I’m tempted all the time to move to 100% cash - but don’t. Admittedly, my exposure to equities is probably only in the 40% area anyway. Throw in lower rated bonds (held thru funds) plus international & EM bonds (also thru funds) and there’s probably another 20% at some degree of risk. Why don’t I jump ship? Because I can’t think of any 10 year period in my lifetime when I’d have been better off having 100% in cash. (Yes - that may have been the case for a few years under Paul Volcker in the 80s.) The cost of living continues to rise yearly whether they call it inflation or not. Pickup trucks stickering in the $70,000 - $80,000 range at your local dealer ought to convince you that inflation isn’t dead.
Besides believing that a moderate degree of risk is better at any age, I get some satisfaction knowing that the folks at T. Rowe Price and Dodge & Cox are much smarter and better informed than myself, most media pundits, and many here. Sure - there’s always the possibility of a big loss - as in 2008. So my advice is: Don’t get greedy. Have a plan. Diversify. Know what you own. And keep a longer term focus.