There is no doubt that the recent two-month correction has been quite painful for investors. Every correction has its own unique “explanation” for the decline. Not only does it vary, but it is unpredictable. This time around there appears to be several theories for the decline.
One theory I have already discussed, is that of a decline in iPhone sales by Apple (AAPL). The reason appears to be a decline in parts orders by AAPL from its existing suppliers. One such example was Lumentum (LITE). To which I ask: what if APL no longer needs its old suppliers. Put another way, has AAPL developed a new supply chain through vertical integration or domestically in the US (rather than China)?
Of the nearly twenty acquisitions that AAPL has announced or completed since the beginning of 2017, here are some key deals worth mentioning:
– RealFace – face recognition
– Lattice Data – artificial intelligence
– Toshiba Memory – NAND flash memory (note that Foxconn did not succeed in its bid to buy the company)
– Sensormotoric Instruments – eye tracking
– Power management technology from Dialog Semiconductor
– Finisar – Apple purchased a minority share of the company which makes infra-red lasers used in face recognition.
So perhaps LITE is no longer needed by AAPL. Has anyone thought about that?
The second big issue torturing the market is the decline in the price of crude oil. The shoot-first-ask-questions-later crowd believes that this decline is due to a decrease in demand; signalling a precursor to a recession. The flip side of this argument, one that I subscribe, to is that the market is being flooded with crude oil from Saudi Arabia and increasing domestic sources. It appears that the price the Saudis are paying for the price for the Khashoggi murder. Also, it is likely part of a concerted effort to bankrupt Iran. Hence, low crude oil prices become a “tax cut” to consumers as well as an important decline for input costs to transportation, industrial and restaurant sector companies. This in turn takes a feather out of the cap of those at the FOMC who fear inflation will mandate further rate increases.
Parenthetically, some FOMC officials are starting to become less hawkish as they are indicating a willingness to be more data dependent and less dogmatic. Fed Chairman Jerome Powell could shed some more light on potential softening of FOMC policy this week.
Also, and again in my opinion wrongly, there are fears that a market decline is portending a recession. First of all, the cause and effect is backward. Recessions cause bear markets and not the other way around. Also, we are in a correction, not a bear market.
I would further add, that the pace of economic growth may decline a bit, but that does not signal a recession. Negative levels of economic growth and job losses are important prerequisites for a recession, none of which are likely in the near future.
Today is cyber Monday, which completes the Black Friday weekend kickoff to holiday shopping. All indications are that the consumer is exhibiting strong spending, especially online. If that is the case, then the market will receive positive data to react to this week.
The last two Monday sessions have been disastrous for the market. After a tough holiday shortened week, we might finally get some stabilization and a rebound materializing this week.
Lastly, I appeared on CNBC last week to discuss my bullish thesis on Boeing (BA)
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL & BA although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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