August was a strong month for the stock market. In fact, the LakeView Growth Strategy put in its best monthly performance since April 2009 with a double-digit return. More information on investing with LakeView Asset Management, LLC and performance returns are available separately on request.
Yesterday we had a typical one-day blunder as a large-scale asset reallocation took place. Recent leaders – tech and retail – were shunned for industrials. That might last a day or two but once the institutional buyers step back up to the plate, the old trends will resume.
Take for example Restoration Hardware (RH). The company reported better than expected earnings on lower than expected revenues. Furthermore, the company guided to stronger future earnings and said that it will focus on earnings growth over revenue growth. The mo-mos (momentum traders) hit the stock hard selling it off 13% on heavy volume. These mo-mos are what we also call the renters or weak holders. Soon the investors (who we call strong buyers or owners) will step up and scoop up the stock on the cheap. Count me in the ranks of the owners.
As the best money managers know (and what I emphasize with my students at Seton Hall) it’s the bottom line and margins that matters most. RH will likely cut out poor performing products to increase margins and the bottom line. My wife and I shopped at RH this year when renovating our powder room in Nevada. RH is not Home Depot (HD), it is a high-end retailer. I might even add RH after the stock price settles in. This is the same strategy I employed with IAC/Interactive (IAC) after it sold off hard on word that Facebook (FB) would get into the dating business. It never did so and IAC surged while FB stock is struggling.
I am not expecting much from the markets for the month of September, despite the strong economic backdrop, but would like to be pleasantly surprised. There are several reasons that September might be underwhelming, including, but not limited to: more trade negotiations, lack of significant earnings or economic reports (except for the August labor report this Friday), and the Jewish New Year holidays (always a challenging period for stocks).
However, once all the brisket is consumed, we will have October and more specifically the next six months to look forward to. Historically, we are about to enter the most positive six-month period for the Standard & Poor’s 500 (SPX). I parse SPX returns into sixteen election cycle quarters. Since 1950, those quarters have performed as follows:
|Before Pres Election||7.07%||4.83%||0.67%||3.24%|
|After Pres Election||-0.20%||2.67%||0.34%||3.42%|
Taking a close look at the data above, one can see that historically, the best quarter is the 4th quarter of the Mid-term Election Year, which will begin this October 1. The second-best quarter is the one immediately following the 4th quarter of the Mid-term Election Year, the 1st quarter of the year before the Presidential Election. Both are presented in boldface for your convenience. All told these two quarters return on average nearly 15% in the Mid-Term election period. The only time this six-month period produced a loss since 1950 was 4q78-1q79 and even then, the decline was less than 1%. The LakeView Growth rose nearly 7% for 4q14-1q15.
Given the current strong economic backdrop these next six months should also perform as have historical trends. I would like to see our clients take advantage of this once in a four-year period market anomaly. Hence, I am making a special offer to current clients and anyone whom they might refer to LakeView Asset Management.
From now till September 30, 2018, I will waive 4th quarter fees for any capital additions (not existing investments) made to existing accounts or new accounts (referrals are always welcome) of at least $50,000. The best way to take advantage of the Mid-Term Election phenomenon is via our Growth or Index Absolute Strategies. Of course, there are no guarantees but given our recent track record, adding to current or new accounts in these strategies seems prudent.
Speaking of Nevada, we locked in our PSLs for the new Las Vegas Raiders stadium – we are in a section on 50-yard line seats. Hopefully by then John Gruden will be gone and the team will be competitive again. In the meantime, the NFL season kicks off this week. Shares of Nike (NKE) got slammed earlier this week when it chose controversial ex-NFL quarterback Colin Kaepernick as its new spokesman. I guess the company wants to piss off half of its US customers. For the record, I wear New Balance (size 9 wide if you want to send me a gift for Hanukah). I would say that 25% of NKE business is derived in North America; of which most we should assume is in the US. Still, the company just put about 12% of its revenues in jeopardy. Not a bright idea if you ask me. The August back-to-school quarter is in the books. Let’s see if the company’s actions impact the November quarter, to be released to the public just before Christmas. The stock stabilized today. I remain neutral on the stock despite the Kaepernick issue. My son Steven still owns the NKE stock that he got for his Bar Mitzvah eleven years ago (from my close friend and fraternity brother, Robert). We also added a little to NKE along the way. I am sure after Steven reads this he will ask me what to do. He knows how to reach me.
Please contact me it you would like to take advantage of this offer. As always, I am available anytime for any questions which you may have.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long NKE, RH, 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 email@example.com
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