Mike’s Morning Brief – August 14, 2019

What’s going on in the world…

Market opens lower, effectively giving up the gains from yesterday. The yield curve officially inverted between 2’s and 10’s. That means that now the 10-Year Treasury yield is lower than the 2-Year. Who in their right mind would lend money eight years longer for less compensation? It’s an unnecessary risk of time. Former Fed Chair Alan Greenspan said yesterday that negative rates in the US are a real possibility. We were more surprised as to how big the bounce was yesterday than further weakness today. Volume was light yesterday. There was half the trading volume in yesterday’s rally than last week’s sharp selloff. There is not a lot of accumulation in place. The spike up off the news that tariffs will be extended to December looked like a whole lot of short-covering combined with the programmed algorithms that seem to be focused on the same themes. Any tweet on trade generates a buy or sell order, depending on the words that are used. This helps explain the wild volatility. 50 point moves on the S&P (which translates to roughly 400 on the DOW) are happening within minutes, if not seconds. The average daily moving average for the DOW this month is nearly 500 points. That’s a big number. In percentage terms, it’s not as big as it used to be, but it is certainly an attention getter. Most things are these days when it pertains to the Market. Economic data out of Europe and China show things continue to slow. German GDP went negative. Earnings Season is coming to an end. Over 90% of the S&P 500 companies have reported. Earnings have grown 1.7% in Q2. That is a far cry from the 28% growth last year. Profit margins are getting squeezed and the Trade War is not helping. Retailers will close out the season, and the Retailers have been struggling mightily. It’s more than the Amazon effect. Oil is lower in early trading. Saudi Arabia is struggling to stem the tide of the price of Oil. It is hurting OPEC big time, which collectively requires a minimum of $80 to sustain government spending. Interest rates are sinking again as money pours into bonds. The 10-Year Treasury yield undercut 1.6% this morning, the lowest level in 3 years. 1.3% is the all-time low, touched in the Summer of ’16, just before Trump’s election victory. Gold continues to provide a safe haven, up again in early trading. It’s another risk off day. 2790 on the S&P is an important support level. We think it gets tested. It came close last week. We’re staying defensive. The hedges that were a drag in June and July are working in August. Corrections are part of the process. Stocks are for sale today. Keep those belts buckled.

Have a great morning,

Mike Frazier