Mike’s Morning Brief – October 10, 2018

Mike talking on the phone

What’s going on in the world…

Market opens in the red again, a new theme since October. Market volatility has returned with a downward bias, though intra-day moves have stocks closing well off the lows of the day. That’s a positive, indicating there is still solid demand for stocks. But the series of lower lows is testing the uptrend. The S&P is on track for 5 straight days down. That has not happened since October of 2016, just ahead of the Presidential election. Keep in mind, the S&P and DOW are merely 2% off their all-time highs. But leadership has changed significantly. Tech, the multi-year leader, has been weak. Utilities and Telecom and Consumer Staples, the most defensive sectors, have been strongest this month. Investor sentiment has been pretty fragile of late. Enthusiasm is not very high. It does not suggest a topping point for this Bull. That said, price action has our attention. We think it’s too early to get aggressively defensive. We still think the Spring of 2019 will require that. But we are studying things very closely. Higher interest rates have created some turmoil, but our sense is the Market is merely recalibrating to factor in the higher cost of capital, which came faster than perhaps expected. We do believe rates are rising for the right reasons, and a Market and economy at all-time highs require higher rates as a cooling agent. The 10-Year Treasury yield is at 3.24%, a 7-year high. Crude Oil has held in at $74, and still looks poised for a move to $80. Hurricane Michael is set to hit the Florida panhandle today. It’s expected to be a massive storm. Things are actually looking more promising on Brexit. A deal might be had in the coming days. That would be a positive. Earnings Season begins on Friday. The Street is looking for 19% growth for Q3. With this selloff, this Market seems to be pricing in some disappointment. Throughout this Bull Market, focus on earnings has sent stocks higher. Perhaps that’s what’s in store again and this weakness proves buyable. Keep those belts buckled. The choppy price action will continue.

Have a great morning,

Mike Frazier

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