Fall with its cooler temperatures has finally arrived! Hopefully you and your family will have a great Holiday season! We look forward to working with you as we close out the teen decade. Here is our latest newsletter discussing relevant topics of interest on the […]
We hope you have enjoyed your summer and look forward to a wonderful season of Fall! We look forward to working with you throughout this season and are pleased to send out our newsletter to keep you updated on the happenings in the economy and […]
Fluent Financial Market Update as of July 15th, 2019
As we wind down the month of July and head into August, we want to keep you up-to-date with the market and our portfolio activity. We hope you are having a wonderful summer and as always, please feel free to reach out with any questions. We are happy to help and provide any support and additional information.
- The S&P 500 was up 6.89% (plus another 2.45% through July 12th) while the MSCI All Country World Index (ACWI) finished up 6.37% and the Barclay’s US Bond Index was up 1.26% in June
- US trade tensions with China continue as both sides returned to negotiations after the G-20 Summit
- The Fed may be forced to rethink a possible July rate cut due to recent positive jobs numbers
- The 3-Month/10-Year Yield curve remains inverted, a possibly recession indicator
- US Markets continue to “climb the wall of worry” and limp to new record levels
- Fluent Financial remains in a defensive posture
Markets just witnessed the best June performance since 1938 with the S&P 500 up 6.89%! This number is a bit deceiving as the S&P 500 was up only 4.3% for the quarter with the months of May (-6.58%) and June offsetting each other. The recent increases are attributed to the U.S. Mexico trade tariff threats abated, positive feelings on a U.S. China trade agreement and a more dovish Fed.
The positive sentiment that the U.S. and China would resume trade talks was confirmed over the final weekend in June, although no actual change has occurred between the two parties. Trump has agreed to hold off, temporarily, adding an additional $300 billion in Chinese tariffs as talks continue but we wouldn’t expect this to last long. China appears to be trying to wait out the Trump Presidency, hoping he is only a one term President, and Trump’s patience with China may be running thin.
As downside risks mount for both the U.S. and global economies, the discussion has shifted from the Fed hiking rates and reducing their balance sheet to fresh rounds of monetary stimulus. Analysts are slashing estimates for the 2nd half of 2019 and into 2020 on consumer consumption, business investment, and trade. While the consensus among Fed governors ranges between no rate cuts to one rate cut, the market had been pricing in far more aggressive Fed action through June and early July. Markets had been pricing in a 40% likelihood that the Fed cuts by 0.50% at their end of July meeting according to Fed Funds futures but recent positive jobs results announced July 5th have changed this assessment to either no rate changes or a 0.25% cut. The US economy added 224,000 jobs in June (160k was the estimate), bouncing back from the subpar 72,000 added in May. Unemployment rose by 0.1%, but for the right reason—labor participation ticked up. Overall, this was a strong report, suggesting that the economy is still healthy and that any rate cuts may be unnecessary.
A strong case could be made that a rate cut could be justified at the end of July as it would bring the current 3-Month/10-Year Yield curve inversion back in line. Rates for the 10-Year US Treasuries dropped below the 3-month rates (inverted) on May 22nd this year and have stayed this way ever since. Inversions like this have been a sign in the past of a possible recession but in this case, it could just be reflecting an overly aggressive Federal Reserve that raised rates one too many times in December of 2018.
Fluent Financial’s portfolios trailed their benchmarks across the board in June but the largest discrepancy was seen in our GRO portfolio, lagging 3.61% behind our benchmark after outperforming by 2.75% in May. 3.22% of this lag was directly attributed to our two Put positions losing value and the excess cash position we had been holding. Other portfolios like ADV, ADVP and V&O suffered similar Put and cash drag scenarios while GWI and GWIM only suffered from the cash drag as they do not contain Puts. This is not an excuse for why we missed our benchmarks but rather the result of poor timing on our part. The defensive decisions we made in late February based on slowing international and domestic growth and trade dispute headwinds with China were premature in hindsight, but the S&P 500 remains at a Forward PE of 15.69, close to its 25-year historic 16.17 average. A Fed rate reduction could add temporary short-term support for this market but could also spook investors into thinking the U.S. isn’t as financially sound as previously thought. Also, with the 10-year US Treasury paying around 2% and slowing international growth, more investors may be willing to steer their money towards riskier US stocks, thus “climbing the wall of worry” and ignoring the obvious downside risks.
Fluent Financial continues to believe that the market is overvalued at these levels and we will therefore continue forward with a defensive posture. We realize that stocks have hit record high levels recently but when tasked with safeguarding our client’s money, our mindset continues to be very defensive in nature and focused on maintaining gains rather than missing out on additional upside movements. In our opinion, the risk of going down 10% from these levels seems greater than the risk of missing out on another 5% upward movement. Increases like we have seen through June and early July caused temporary challenges with the performance of several of our portfolios but any slight valuation adjustment, like what we witnessed in May, will be very beneficial to our clients based on our current positions.
Thank you to everyone who attended our Annual Horse Race Event. We had a wonderful time catching up with everyone and getting to show our appreciation. We look forward to seeing everyone next year! We now offer Notary services for our clients at no additional […]
As we end March and head into April, we wanted to keep you abreast of the happenings in the economy and how it relates to the market and your money. The S&P 500 is up 12.84%, the Barclay’s US Bond Index is up 3.04% YTD […]
- The S&P 500 is up 10.4% this year and the Barclay’s US Bond Index is up 1.1% YTD. The MSCI All Country World Index (ACWI) is up 9.35% for the year.
- The Federal Reserve is rethinking the need for up to two rate increases in 2019 and changing their tone publicly to a less aggressive stance.
- Trade talks continue with China and appear to be making progress but this unknown outcome stills weighs on the market.
- Internationally, the outcome for Brexit is still unknown and growth appears to be slowing which is causing concern for a possible slowdown in the growth of the US Economy.
- WTI Crude oil is up over 22% this year to $55.59/bbl but well off its October 3rd, 2018 high of $76.41/bbl.
- Fluent Financial has expanded our Options trading strategy to two more of our portfolios in expectation of volatile but sideways moving markets for the remainder of 2019.
The S&P 500 had a rough fourth quarter in 2018, down 14%, but since the lows on December 24th, the Index has returned almost 18%, 10.4% which has come since January 1st, 2019. Much of the recent volatility in the markets can be attributed to comments made by the Federal Reserve Chairman, Jerome Powell, and whether the Fed would continue to raise interest rates from the current 2.4% level. The stock market’s steady increase of late can be attributed to a softer stance being taken by the Fed about what had previously been a rigid set of rate hikes that were going to occur throughout 2019. The Federal Funds Rate increased four times in 2018 (from 1.4% to 2.4%) with the zero to two rate hike predictions for 2019 leaning more to the conservative side after Powell’s latest comments. The Barclay’s US Bond Index was up 1.64% in the fourth quarter of 2018 but seems to have cooled through the first six weeks of 2019, up 1.1% as some investors shift their money from bonds back to stocks.
(S&P from Sep 28th, 2018 through Feb 15th, 2019)
The impact of a pending trade deal with China and how it will affect the market remains to be seen but we would expect an initial positive move on the announcement of such an agreement, followed by a lengthy “wait and see” period to verify China’s compliance within the parameters of any deal reached.
The MSCI All Country World Index (ACWI) has somewhat mirrored the US market, down slightly more than 13% in the fourth quarter, but up 9.35% for the year. Weaker than expected Eurozone economic data and geopolitical uncertainty changed the European Central Bank’s assessment of risks to the downside. China’s latest economic readings pointed to further weakness, driving global economic uncertainty to its highest level ever. The effects of a Brexit deal are still unknown, but the European Union appears to be making Britain’s exit as punitive as possible to prevent other members from leaving.
WTI Crude oil is up over 22% this year to $55.59/bbl but well off its October 3rd, 2018 high of $76.41/bbl. Turmoil and supply disruptions out of Venezuela and cuts by OPEC are being met with record production outputs from the U.S. Current global demand appears stable but future estimates show this tapering off as China continues to increase their energy efficiency and GDP is on the decline.
Fluent Financial is expecting continued volatility through 2019 and has expanded the use of options into six of our seven portfolio strategies. Using either a Buy Write covered Call strategy or a Put purchase strategy (several portfolios use both) is a way we generate additional cash flow and reduce overall downside risk and thus reduce the volatility of returns within our portfolios.
Fluent Financial was honored to sponsor the 2018 Generational Group Jingle Bell Run again this year. The Jingle Bell Run has been a Dallas tradition for over 20 years that benefits the Trinity Strand Trail and the Mavs Foundation. The event consisted of a nighttime […]