NOTE: this commentary was written overnight. However, due to technical difficulties could not be published until midday today. Please accept my apologies for any inconvenience.
For the month of January 2019, the Standard & Poor’s 500 (SPX) rose 7.87% after declining 9.18% in December 2018. The index remains 6.79% off its all-time high set on September 20, 2018. So, what did we learn? Here is a list of my top 10 things that we learned (or what I knew) during that period:
- We are not in a bear market. We experienced a severe correction. Those who believed that the stock markets were in a bear market were either: 1) technicians who look at charts, not fundamentals, 2) inexperienced or 3) naïve. For the record, I have friends who are technicians and don’t mean to demean them.
- Federal Reserve Chair Jerome Powell might be an intelligent economist. However, he had not learned how to communicate to the financial markets. That is a rookie mistake that his predecessors Janet Yellen and Ben Bernanke both made. In January he learned his lesson and learned to translate from Fedspeak to Marketspeak; in the process turning his prior hawkish demeanor into a more dovish or neutral stance.
- Earnings expectations were lowered to levels implying a slowing economy in December. By the time actual earnings reports came out, companies on average bettered top and bottom-line expectations. Apple (AAPL) was left for dead. However, as I told many people, AAPL management was snookering the market. The market took the bait. I did not. The company was buying stock on the dip as did yours truly for client, family and personal accounts. While AAPL is our largest holding, I did skim a little off the top around $212.50 for most accounts and repurchased most of that stock around $151 on average. AAPL bottomed at around $142 in the 4th quarter and closed at $174.24 yesterday. Now you know why I tend to trade around positions.
- Fear that trade wars, i.e. tariffs, and the Federal government shut-down would have significant impact on earnings and the economy were unfounded. The wall on the southern border is irrelevant to the markets. December’s labor report was outstanding. The USA remains the strongest non-emerging economy in the world.
- Panicking is a mistake. Try to remember the last time you panicked and were better off for doing so.
- Investors forgot that investing is a long-term endeavor. Trading is a short-term endeavor. Don’t turn investments into trades.
- People took their eye off the yield curve. It has widened out and shifted down since the end of September. That’s a good sign.
- The biggest headwind in 2018 for multi-national corporations was the strength in the US Dollar. Earnings guidance for 2019 continues to expect a rising greenback and hence have tempered some expectations. However, the Dollar Spot Index (DXY) declined in December and January. I expect that DXY will decline further this year and stabilize at levels below 2018 averages.
- Cash is king. Stick with companies rich in cash and strong financial condition. They will get you through market storms. My favorite indicator is the Altman Z-Score which is an indicator of balance sheet strength and potential bankruptcy. Luckily for me, while this indicator is not well known; I learned from Edward Altman at NYU while I was studying for my MBA.
- The Volatility Index or VIX is a poor indicator of market direction, as I have written about in the past. In fact, my understanding is that another commercial volatility index will soon be coming to market.
I am expecting some near-term market weakness. This is as a result of some proprietary index research and a phenomenon called the Pit Bull low. As a result, I sold index trading positions and bought an index short, ProShares Ultra QQQ (PSQ) in the last hour of trading on Wednesday. I plan to hold that position till sometime on Monday.
Lastly, do recall this segment on CNBC? Boing (BA) was around $318 at the time. I put my money where my mouth is. BA hit $400 this week. It will go higher. Much higher. At least to $450 without a Chinese trade agreement and $500 with one. Wall Street analysts in just the last week raised their BA consensus price target to $436. That’s real value added. Where were they in November? I might trade around our positions in BA.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, BA, PSQ, 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.
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