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Steve's Newsletter

Steve's July 2019 Newsletter

Through all the emotional market anguish and political tumult: as of June 30, 2019 the Dow is up +14.0%, the S&P 500 is up +17.3% and the NASDAQ is up + 20.7% YTD.

Be Careful What You Wish For!

Determining the direction of the US stock and bond markets at this time is like approaching a signal light in your car and the signal light is lit bright green, red, and yellow at the same time. The stock markets are near new highs and saying "good to go, all clear." The bond markets are saying" caution/stop." So something is not correct here!

Yes, the S&P 500 is near an all time high, but at the same time it is basically back where it was in January 2018, 18 months ago! Although the Federal Reserve could lower interest rates as early as mid July, if they do lower rates, it is very possible that we could be seeing a typical "buy on the rumor and sell on the event scenario."

As far as bonds go, the yield on the 10 year benchmark US Treasury note slipped below 2% in June after being over 3% in late 2018. Could it go lower? Take a look at some European Union bonds that pay a negative interest rate of -0.40%. That would take paragraphs to explain, but it's not a good economic sign for world economies!

There is Unprecedented Uncertainty in the Markets!

Wall Street's cry is for the Federal Reserve to come to the rescue and lower interest rates. The US economy, although doing OK, is not growing as fast as it was last year, capital investment is deteriorating, trade issues are concerning, Iran-China-Russia are not our friends, gold prices are rising for the first time in years, global economies are shaky, employment has peaked, manufactures are starting to be concerned and the risk of recession is slowly rising?  Putting off the inevitable end of this long market expansion by lowering interest rates could lead to a stronger stock market in the "short term." Lower rates generally mean higher valuations for stocks and that's what is happening now. It is what President's in their final year do to be re-elected; Juice the economy! However, lowering rates now will make it much more difficult to recover quickly from a future economic downturn, whether that's months or years away. It's not typical economics to lower rates without real signs of market slowdown or economic turbulence.

Now here's some counter intuitive reasoning why this market could go higher: There's no euphoria or enthusiasm that I see! We're not all rushing to buy stocks because we're sure they will be higher tomorrow (as in 1999 and 2006). Complacency is a good sign!

Investing is emotional! Just as bull markets can be exhilarating, bear markets can be terrifying (2008). Although I feel this bull market might have some legs, it does make sense to make sure we have your Newmarket Advisors, Inc. portfolio commensurate with your risk appetite and both short and long term cash flow needs.

At Newmarket Advisors, Inc. it has always been my ongoing task to help guide you through all the confusing signals! Together, it is proper risk assessment, diversification, rebalancing and your long term positive attitude that will help you continue to achieve your financial goals!

Regards,

Steve Newman