Markets sell in May

  The old adage “sell in May and go away” seems to be working this year. In short order all three averages experienced a down draft over the past few days that amounted to about a 5% decline in total. Is there more to go on the downside? If I were a betting man, I would say the odds are in favor of more declines in the weeks ahead. I base that bet on the assumption that it will take at least until the end of June before we get anymore clarity on whether or not President Trump is willing and able to salvage a trade deal with China. By now, most readers are aware that there has been an abrupt change in expectations on whether or not the tariff trade wars will end anytime soon. Both countries have escalated their rhetoric and at the same time made clear that more tariffs are in the works unless a resolution can be successfully negotiated. There is a G-20 meeting coming up at the end of June. Reports are that President Trump and his Chinese counterpart, Xi Jinping, will meet at that time. Until then, investors can expect this war of words to continue. Traders will be cocked and ready to pull the trigger on every tweet, comment, or action by either side. I expect markets to respond (up or down) with a vengeance. At the same time, expect to read and hear how tariffs are bad for worldwide economic growth. The bears will begin warning that Trump’s actions towards China will cause the U.S. economy to tip into recession next...

Tariffs trash stocks

Volatility in the form of U.S. trade tariffs levied on China cut through investors’ complacency with a vengeance this week. It took less than three days to drop the markets by 3%. Is it over or do we have another 5% or so to endure? My bet is that it is over—for now. Sometime during the on-going trade negotiations occurring in Washington today and tomorrow, the thorny trade issues, (such as intellectual property (IP) protection for U.S. companies) will be kicked down the road. A compromise on other, easier issues will be announced as “on-going” (although not inked) and the Chinese delegation will fly home in an atmosphere of reconciliation. From the President’s perspective, China, after agreeing to a list of breakthroughs in the trade negotiations in Peking two weeks ago, “broke the deal.” Over a half dozen important “firsts” involving IP rights, as well as other structural rules and regulations that have hampered U.S. companies doing business in China, were first agreed to as of two weeks ago. A week later, half of them had been deleted from the formal draft agreement sent to Treasury Secretary Steven Mnuchin and Chief Trade Negotiator Robert Lighthizer. The move surprised the negotiators and infuriated the President. Sunday night, the President took to Twitter and threatened to raise U.S. tariffs on $200 billion of Chinese goods from 10% to 25%. The tariffs took effect Friday morning. The Chinese have responded by preparing their own additional tariffs on U.S. goods. As you might imagine, the Dow dropped 500 points or more on Monday, spiking higher on Tuesday, down again Thursday, and by Friday...

Stocks chalk up double-digit gains for the quarter

Friday marked the end of the quarter for stocks and investors worldwide celebrated by buying. It was a spectacular come back from last year’s fourth quarter. The question on your mind right now is will the run continue?   Yes, it likely will, but there may be a hiccup or two along the way. As you know, markets climb a wall of worry and this week we added another brick and mortar to that worry. This time the center of angst was an inversion of the yield curve that began last Friday. It is a possibility we have written about several times in the recent past. To keep it simple: a yield inversion in the bond market occurs whenever a shorter-term bond’s yield rises above that of a longer-term security. It is considered to be a harbinger of a future recession. Yields on the U.S. 10-year Treasury bond fell below the yield on 90-day Treasury bills. Historically, in a growing economy, one expects that the typical behavior of the yield curve is that longer-term interest rates have higher yields than shorter-term rates. So why the inversion? It’s all about risk. The U.S. 10-year government bond is considered one of the safest assets in the world. When uncertainty rises (as it did last week), investors flock to buy that bond. As the demand increases, the bond price rises, and its yield goes down. It went down so much that it inverted, and it remained that way throughout this week. So why all this economic worry? Topping the list is the slowing of the world’s economies, especially in Europe and China....

When enough is enough?

For weeks now, ever since Christmas Eve, stocks have climbed almost straight up. It has been a classic “V” shaped recovery in the markets. We are due for a break, but who knows when. If I am correct, we should see either a 3-5% pullback or a multi-week period of back and forth. Either way, it should be nothing for you to be worried about. The worst, I would expect is that it would be a dip to purchase after all is said and done. Last week I mentioned that a U.S./China trade agreement may have already been partially discounted by the market. The anticipation of a deal was the fuel that has propelled this 18% gain in the markets since December. As to exactly when this next decline will occur is anyone’s guess. We could easily run another 1-2% from here if a trade deal is struck today or over the weekend, and if we do, just enjoy the ride. The contrarian in me recognizes that the “fast money” crowd is expecting a correction, like just about everyone else and they might be right. Afterall, markets are extremely overbought. Investor sentiment, while not yet near the September readings (just before the market correction), is over 50% (51.9% to be exact). That indicates some caution should be exercised on new purchases, but bullish sentiment would need to increase to something like 62% bulls before a pullback is all but assured. On the fundamental front, earnings expectations are dropping again. As it stands right now, Wall Street analysts are expecting overall results to increase by 7.8% this year, which is...

The origin of Black Friday

As you finish your turkey and prepare to get an early start on Black Friday shopping, you might wonder how shopping became such an integral part of your Thanksgiving holiday. The term has followed a circuitous route through our financial history. Although the term “Black Friday” is a new phenomenon, its origins date back to the late 19th century. The term was first associated with a stock market crash on September 24, 1869. Two speculators, Jay Gould and James Fisk, tried to corner the gold market. This created a boom-and-bust atmosphere in gold prices. That volatility spilled over into stocks. Before it was all said and done, stocks lost 20% of their value, while commodities fell by over 50%. Neither speculator was ever punished for their deeds (sound familiar?) due to political corruption within New York’s Tammany Hall. The term Black Friday, however, was used to describe that period of our financial history for the next century. It wasn’t until 1905 that the day after Thanksgiving had anything to do with shopping. It was in that year that a Canadian department store, Eaton’s, launched the first Thanksgiving Day parade in downtown Toronto. Santa lead the parade in a horse-drawn wagon, while Eaton’s benefited by seeing an uptick in shopping at their store the following day. But it wasn’t until 1924 that Macy’s followed the Canadian lead by announcing their own parade. A similar increase in holiday shoppers convinced Macy’s and soon other retailers across the nation, that Thanksgiving parades were good for business. Retail sales on the Friday after turned out to be so good that the government got...

The apple of our eyes

Go into just about any supermarket right now and what do you see? Bins and bins of gorgeous red, green, and golden apples. The harvest is overwhelming, but some apples are worth more than others. If you are like me, an average consumer, it takes about 23 minutes to do my grocery shopping, according to Proctor and Gamble. During that spate of time, I buy an average of 18 items out of maybe 30-40,000 choices. I have little time to browse and, most of the time, I don’t even check the prices, which brings me back to the apple cart. You see, I value my fruits and vegetables. The more local, the better, because to me, the taste is everything. Until recently, I was partial to certain kinds of apples depending on whether I was baking, cooking, or just chomping down on one freshly picked from a local orchard. That’s until I encountered the Honeycrisp. If you have sampled one, you know what I mean. They are everything an apple should be: crisp, with an electrifying mix of acidity and tangy sweetness. It is an apple worth buying, even if the price is two or three times the cost of the next best thing. Why is the Honeycrisp worth so much more than the Fuji or Gala? Is the taste really that different, or is it all a clever marketing gimmick? To understand the difference, let’s look at the apple business in general. This year the industry expects a nationwide apple crop of 256.2 million, 42-pound bushels of apples. That is about 6% lower than last year’s crop. Washington...