Other than some media appearance announcements, my apologies for not publishing My Gut Feeling for nearly four weeks. There are two very good reasons.
First, I took a working vacation to Seattle, Alaska and Canada. I had a great opportunity to do some boots on the ground research into one of our larger and long-term holdings, Royal Caribbean Cruises (RCL). I am eager to add to our positions after the cruise but would like to see the US Dollar weaken and oil prices come down as well. In the land of baristas, I confirmed my opinion that Starbucks (SBUX) is not investable.
Second, our technology team moved this website www.lakeviewasset.com to a new server after the old server caught a virus. The new server is clean and we are back to publishing. Unfortunately, two posts were lost but attempts are being made to resurrect them.
So, with that all said, here is my analysis of the financial markets for the second quarter and my look ahead to the second half of 2018.
There were three main themes for the financial markets in the second quarter of 2018. First was the ongoing tug-of-war around the 3.00% yield mark for the 10-Year US Treasury Note. Second was the escalation of global trade tensions. Lastly was the emergence of small cap stock leadership and continued strength in growth technology stocks. Let me expand a bit on each of those themes.
Clearly the bond market is beating a hasty retreat as yields rise on the long end and the FOMC continues to tighten. This can be attributed to an economic expansion beyond the lethargic economic growth which took place during the seven years following the Great Recession. Rates across the entire yield curve have risen and hence bond prices have declined. Furthermore, the yield curve is flattening. For all these reasons, I am strongly suggesting that clients who seek yield either maintain a portfolio with duration (average maturity) no greater than seven years or allocate assets to dividend-oriented stocks.
Escalating trade tensions have sent several temporary shocks through the equity markets. President Trump is attempting to recalibrate global trade from decades long “free-trade” agreements which no longer make economic sense for the United States; to free and fair based global trade arrangements. What is not known to the average US citizen and investor is that European and Asian nations already have huge trade tariffs in place to protect their own industries. So, while a trade tariff “war” is never a good global policy, it may be a means to an end of existing outdated unfair trade agreements. I would note two factors which have eluded most investors and financial media. First is that the US Dollar continues to gain strength versus major foreign currencies. That is not what you would expect in a trade war. Second is that every time that the market opens lower on trade tensions; the market then rallies from that low point for the rest of the session, ending many times in the green. In the fullness of time, all parties will work out trade issues and a new normal will ensue to the benefit of all.
As for stocks; technology growth and small caps, continue to be market leaders. Financial, industrial and energy stocks are laggards. New tax policy has contributed in some part to that sector leadership. Despite a rally in the price of crude oil, energy stocks are flat to slightly lower this year.
The S&P 500 (SPX) rises on average 0.10% in third quarter of a Mid-term election year, though has not posted a decline since 2002. Given the dysfunction in Washington, DC, summer vacationing and the upcoming elections, I don’t expect much from the macro markets and thus I will continue to apply my stock picking acumen. I will be getting more aggressive as the quarter ends since the fourth quarter of a Mid-Term election year and first quarter of the following year are the two best performing quarters in the sixteen-quarter election cycle.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was RCL, SPY, SSO & SPXL — 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
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant, beverage, and agricultural stocks. An individual subscription to the newsletter can be ordered at www.restaurantstox.com Furthermore; Scott is a professor at the Seton Hall Stillman School of Business in South Orange, NJ.
– You can email Scott at firstname.lastname@example.org
© 2018 LakeView Asset Management, LLC. All rights reserved.