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Buy High, Sell Higher - November 20, 2019

Buy high and sell higher—I know, it sounds counterintuitive. Let me explain.

  • Through the three years ended November 18, the S&P 500 Index2 has registered 112 new highs, including 23 this year.
  • 53 closing highs were recorded in 2014, 10 in 2015, and 18 in 2016 (Reformed Broker, St. Louis Federal Reserve, Dow Jones Indices).
  • On November 18, the S&P 500 Index recorded its 23rd closing high of the year—3,122.03 (St. Louis Federal Reserve).

What’s behind the upbeat mood? Fading recession fears and optimism the U.S. and China will soon sign phase one of a trade deal.

  • If a deal isn’t signed, expect short-term volatility.
  • New tariffs scheduled to go into effect on December 15 could be implemented, exacerbating tensions and leading to a new round of tit-for-tat retaliation.

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Stocks and Rate Cuts and Performance… Oh My - November 18, 2019

The Federal Reserve has cut interest rates three times this year. Following October’s meeting, the Fed signaled a shift in its stance, suggesting we won’t see another rate cut this year.

One closely followed gauge published by the CME Group currently places odds of a December rate reduction at just 1% (as of November 15).

While we may not see any more cuts this year, one may ask, “How do stocks perform in the wake of rate reductions?”

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I Get Knocked Down but I Get Up Again - November 13, 2019

If we plot yields of Treasury bonds based on maturity, we get what’s called the yield curve. Normally, watching the yield curve is like watching grass grow.

But when it inverts—the yield on short-dated bonds exceeds those of longer-dated bonds—alarm bells go off because it historically has signaled a recession.

On average, a recession has begun 21 months after the 10-year/2-year inverts and 11 months after the 10-year/3-month inverts.

I get knocked down

 

10-year and

2-year invert

10-year and

3-month invert

Average start of next recession 21 months 11 months

Data source: St. Louis Federal Reserve Past performance is no guarantee of future performance

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Q3 Earnings Season Enters the Final Stretch - November 11, 2019

We’re well into Q3 earnings season. While the numbers have been mixed, most companies have topped a low hurdle, which has eased worries about the economy and has pleased investors.

Let’s dive in. With 89% of S&P 500 companies having reported Q3 earnings, profits are expected to fall 0.5% versus one year ago (Refinitiv, a blend of those who have reported and estimates for those who have yet to report). Down 0.5% – it’s nothing to write home about.

Let’s look at some of the reasons. We’ll start with the negatives before wrapping up with the positives.

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Fed Rate Cuts and Stock Market Performance - November 6, 2019

As expected, the Fed reduced its key lending rate for the third time this year. As we discussed last week, the Fed signaled we probably won’t see a repeat in December, but it did leave room to adjust if conditions warrant.

  • The Fed set a high hurdle for future rate hikes.

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