Mike’s Morning Brief – August 28, 2019

What’s going on in the world…

Market opens in the red, building off yesterday’s losses which saw a reversal in its own right. The 2900 level on the S&P provided the resistance on the oversold bounce. Volume has been quite light on the up days, while large and ferocious on the down days thus far this Summer. In fact, the 4 largest volume days have been on 2%+ decliners. Does that mean a washout is happening and the lows are near? Perhaps. But unlikely. The yield curve keeps deepening its inversion while rates fall. Money is seeking safety in fixed income and Gold. The Dollar is strong. The stocks that are leading are defensive in nature like Utilities, Consumer Staples and Software. Small Caps and Cyclicals have been extremely weak. It’s just not a healthy environment right now. It is increasingly likely that the May lows of 2700 S&P get tested. Yesterday saw the S&P close below the January 2018 highs, showing no progress for nearly 20 months. This is a Bear Market cycle within the decade long secular Bull. Fears of recession are growing. We still don’t see one on the horizon, but you don’t need a recession for a significant Stock Market selloff. We’ve seen plenty of them throughout this Bull run. Brexit keeps getting messier and more confusing. The new Prime Minister reportedly plans to ask the Queen to suspend Parliament. Bloomberg is reporting that the Chinese are confused by Trump, and are preparing for the worst. The likelihood of a deal before the 2020 election appears to be less and less likely. China is focused on its 70th anniversary celebration in October, and do not want to do anything that projects weakness. Perhaps cutting a deal would suggest that they caved and Trump bullied them.  Chinese officials reason that is it dangerous for any official to advise Chinese President Xi Jinping to sign off on a deal that Trump may eventually break. It is a very complicated and confusing situation. The process has been even more so with the use of Twitter as the primary communication medium. Regardless, the cycle is slowing. The Trade War is merely accelerating the inevitable. Keep those belts buckled. The wild ride is going to continue.

Have a great morning,

Mike Frazier