Perspectives

Over the last few weeks we have gotten a lot of questions as to what is up with the markets. We have explained in great detail a few things that are weighing down the market, like the recent oil sell off, the Federal reserve tightening too quickly, and the trade negotiations with China.  All of these things are affecting the market but they should not be making the market swing like it has since the election just a few weeks ago.   

We read a great article this morning that echo’s some of the conversations we have been having with clients over the last few weeks. We think fake and bad news is depressing the market much more than the current economic reality  would dictate and it seems some analysts agree. 

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Fake And Bad News Is Depressing Market, JPM’s Kolanovic Says

DECEMBER 10, 2018 • JOANNA OSSINGER 

Biased news outlets, political opportunists and publicity-hungry analysts are whipping the stock market into a frenzy that goes beyond anything justified by economic or earnings fundamentals, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic. 

Kolanovic, global head of macro quantitative and derivatives research, was among the JPM analysts who published a year-ahead outlook on Friday with an expected 2019 target of 3,100 on the S&P 500 Index, implying a gain of almost 18 percent from current levels. The latest sell-off has overpriced the risk of recession, said Kolanovic’s colleague John Normand, head of cross-asset fundamental strategy.

The benchmark stock index sank 4.6 percent in the latest week, to 2,633 points, its biggest decline since March, and is down 1.5 percent for the year to date. In the past three weeks, U.S. stocks have lurched between gains and losses of at least 3 percent, volatility not seen such the global financial crisis a decade ago. 

“To some extent, we trace the disconnect between negative sentiment and macroeconomic reality to the reinforcing feedback loop of real and fake negative news,” the strategists wrote. 

And they see a lot of factors playing into that loop. 

“Domestic political opposition may have an interest to paint a negative economic picture, individual market analysts gain more visibility and coverage with negative calls, and foreign adversaries amplify a negative news cycle in order to foster divisions and erode confidence in financial markets and the economy,” the strategists wrote. 

Kolanovic monitors sentiment indicators, including how often topics are mentioned in news reports. And he’s concerned with certain news outlets that, while presenting at least a veneer of credibility, also contain darker offerings. 

“There are specialized websites that mass produce a mix of real and fake news,” Kolanovic wrote. “Often these outlets will present somewhat credible but distorted coverage of sell-side financial research, mixed with geopolitical news, while tolerating hate speech in their website commentary section.”

“If we add to this an increased number of algorithms that trade based on posts and headlines, the impact on price action and investor psychology can be significant,” Kolanovic added. 

The report cited the arrest reported on Dec. 5 of Wanzhou Meng, Huawei Technologies Co.’s chief financial officer, which first caused turmoil in after-hours stock futures trading and then weighed on markets for the rest of the week, as an example of such negative news. 

Furthermore, a decline in liquidity is amplifying moves, according to JPMorgan. Market depth in S&P 500 Index futures contracts recently plunged to record lows, Kolanovic said. 

And there’s another factor exacerbating the picture, as well: President Donald Trump and his administration.

The White House has “given more than enough material (e.g. tweets, etc.) to be exploited by these actors in order to create an environment of investment uncertainty (e.g., on issues of global trade, oil, business decisions of individual companies, etc.),” the strategists wrote.

The president continues to tweet prolifically, but after posting Twitter messages about the stock market more than 35 times since his election, he’s gone mum about stocks as markets have gone south in the past month.

 

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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!

Disclosures:

Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance.  Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Barron's Disclosure:

The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice.  Investment performance is not an explicit criteria.  Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors. 

Five Star Professional Disclosure:

The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided.  Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf

Fortem Financial 2016. All rights reserved. 

Data Sources:  News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations.  Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.  The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates.  Past performance is no guarantee of future results.  All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  Forward looking statements are based on current expectations and assumptions, the economy, and future conditions.  As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict.  Actual results may differ materially from the anticipated outcomes.  Carefully consider investment objectives, risk factors and charges and expenses before investing.  Fortem Financial is a registered investment adviser with the SEC.  Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks.  The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.  The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.  The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks.  The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide.  Market indices listed are unmanaged and are not available for direct investment.

Turmoil reigned over the markets last week despite generally positive economic news.  The last two weeks (months) have been wild, to say the least. For the week, a “risk off” sentiment prevailed; the Russell 2000® Index fell 5.56%; the Nasdaq lost 4.93%, S&P 500® Index fell 4.60% and the Dow Jones Industrial Average fell 4.50%. The week began positively, with the announcement that the U.S. would delay tariffs as it negotiated terms of a new trade pact with China.  The euphoria quickly dissipated, however, following President Trump’s hardline comments and his selection of Robert Lighthizer to lead U.S. negotiations; also, China’s comments on the G-20 meeting take-away varied considerably from President Trump’s. The appointment of Lighthizer as lead U.S. negotiator is not surprising; he led negotiations with both Mexico and Canada in the revised NAFTA treaty. 

On Tuesday, the market sold off as hopes for a trade agreement sank.  China has subsequently confirmed its belief that an agreement can be reached within the stated 90-days period, and its plans to resume importing oil and agricultural products from the U.S.  Relations were tested mid-week with news of the arrest, in Canada, of the CFO of Huawei on charges of violating the trade embargo with Iran.  The impact of the arrest on negotiations is unknown, although Chinese officials initially commented that Beijing considers the arrest a separate issue.  

On Friday, OPEC and Russia agreed to cut oil production by 1.2 million barrels per day, for six months beginning in January.  This week the U.S. EIA reported a significant reduction (7.3 million barrels) in U.S. oil inventories; also, for the first time, the U.S. became a net exporter of petroleum products.  The markets reacted positively; on Friday, West Texas Intermediate rose 2.2%; even so, WTI closed more than 30% below its YTD high in early October.  In November, the U.S. added 150,000 jobs, below estimates, but sufficient to maintain the 3.7% unemployment rate.  This report should provide support to recent Federal Reserve commentary that, in relying on market data, it may signal a slowing of interest rates increases in 2019.  Still, the Fed is widely expected to raise interest rates at next Wednesday’s meeting. 

Job growth should keep the Fed on its tightening path in December. Forward guidance is losing its usefulness and data-dependency is gaining relevance, given that the U.S. labor market is near full employment and inflation is around the 2% target. The Fed has been stressing its data dependency and striking a less hawkish tone recently, opening the door to a slower pace of tightening in 2019.

The biggest concern we see right now is the flattening and potential inversion of the yield curve. Throughout this correction, the big up days have not demonstrated enough participation/ breadth/ confirmation from risk-on factors- and the big down days have not shown enough of a wash-out. Frankly, the market's weakness was surprising given that you can argue the market got exactly what it was looking for, if not more, in the preceding week's: 1) dovish comments from the Fed, especially at Powell's ECNY luncheon, and 2) a much more optimistic US-China trade deal out of the G-20.

The yield curve reached its flattest level since prior to the great recession but it is important to note that it has not yet inverted. While many are watching the curve as an indicator a recession is lurking, a look back at the last three times the 2/10 curve first inverted suggests equities can rally further before a recession occurs. The big takeaways from the U.S.-CN trade deal are 1) a temporary Shanghai Accord/inflection point is being set up, 2) President Trump is becoming more pro-growth post-midterms/pre-presidential elections, and 3) it will be hard for China to reform in 90 days so incremental changes will take place over the next several months.

The markets are well oversold due to concerns about the impact of trade issues in slowing the global economy.  During volatile periods, computer trading programs often lead market activity; extreme stock price declines can result when passive investors follow suit.  Recent commentary suggests that an extended trade war may lead to a possible recession; here, though, the underlying assumptions are unlikely.  China and the U.S. are very much aware of the potential damage if they fail to resolve trade issues.  Politics certainly plays a role as the 2020 election comes into focus.  The selloff last week, however painful, may nevertheless have a positive impact on negotiations to the extent that it provides motivation to resolve the outstanding issues.  Market sentiment, both positive and negative, is not always rational.  Today’s underlying fundamentals remain strong; investors will refocus once the clouds of uncertainty lift.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return.  Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!

Disclosures:

Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance.  Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Barron's Disclosure:

The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice.  Investment performance is not an explicit criteria.  Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors. 

Five Star Professional Disclosure:

The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided.  Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf

Fortem Financial 2016. All rights reserved. 

Data Sources:  News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations.  Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.  The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates.  Past performance is no guarantee of future results.  All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  Forward looking statements are based on current expectations and assumptions, the economy, and future conditions.  As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict.  Actual results may differ materially from the anticipated outcomes.  Carefully consider investment objectives, risk factors and charges and expenses before investing.  Fortem Financial is a registered investment adviser with the SEC.  Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks.  The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.  The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.  The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks.  The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide.  Market indices listed are unmanaged and are not available for direct investment.

Last week we discussed the Federal Reserve policy as one of the items weighing down market performance. Other items currently weighing on the  market are trade with China and the big sell-off in oil.  The last 5 days appear to have broken favorably.  Ultimately it’s the response from price action to news that we care about, and on that score, last Wednesday’s post-Powell move was among the strongest internal days we’ve seen for stocks this year.  It looks like we may get another shot to duplicate that strength on the back of the China trade truce, should we come to an agreement.  We do find it notable that neither the Powell speech nor the Chinese trade truce has been able to steepen the yield curve.  The 2yr/10yr curve is at 19 basis points this morning, essentially at the lows from late-August.   

December has the highest % probability of a positive monthly return, checking in at roughly 75% since 1950.  Seasonality remains at the market’s back, but overbought conditions in neutral trends can be suspect.  Industrials have a historical tendency to do well in December and their message from here will also be key for the call.  

The equity markets ended last week on a high note following Federal Reserve Chairman Powell’s comments on Wednesday that interest rates were “just below” neutral.  The market’s takeaway: the Fed will likely raise rates, as expected in December; rate hikes next year will be data dependent and may be slower than many analysts previously anticipated.  The equity markets jumped in response to Chairman Powell’s positive remarks.  For the week, the Nasdaq led (+5.64%) as technology stocks rebounded; the DJIA rose 5.15%; the S&P 500® Index rose 4.83%, and the Russell 2000® Index rose 2.96%. 

On Friday, world leaders began a two-day G20 meeting in Buenos Aires.  Before the start, the U.S., Mexico and Canada signed the new North American Trade Agreement although the Agreement faces uncertainty in Congress.  President Trump and China’s President Xi met on Saturday; the U.S. and China agreed to a 90 day ceasefire on additional tariff increases in exchange for negotiations on China’s industrial policies.  The U.S. and Europe continue to negotiate trade issues; following General Motor’s announced closing of several plants, President Trump suggested that auto tariffs may be necessary.  Yesterday's market turnaround on the US and China trade news from the G20, shows how much trade is weighing on the market. Over the past few weeks, the global markets have fallen sharply due to concerns that a failure to end trade disputes would dampen global economic growth; also, the leaders of the major economies seem to realize that finding a solution is becoming more urgent.

Oil prices fell 22% in November as inventories have swelled due to a slower-than-anticipated implementation of the U.S. trade embargo with Iran and production increases by the U.S., Saudi Arabia and Russia.  Saudi Arabia and Russia may agree to reduce production at next week’s OPEC meeting in Vienna.  Analysts will closely examine the meeting’s results for insights into oil prices in 2019.  The drop in oil prices has benefitted consumers with more spending power; however, but further declines could reduce energy production in 2019.

Overall, the U.S. economy is doing well; the updated third quarter GDP reading remained at 3.5%.  Investment sentiment has improved along with the outlook for interest rates.  If the markets see tangible evidence that economic and political conditions are indeed improving, the equity markets could be poised for a December rally.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return.  Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!

Disclosures:

Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance.  Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Barron's Disclosure:

The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice.  Investment performance is not an explicit criteria.  Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors. 

Five Star Professional Disclosure:

The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided.  Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf

Fortem Financial 2016. All rights reserved. 

Data Sources:  News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations.  Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.  The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates.  Past performance is no guarantee of future results.  All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  Forward looking statements are based on current expectations and assumptions, the economy, and future conditions.  As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict.  Actual results may differ materially from the anticipated outcomes.  Carefully consider investment objectives, risk factors and charges and expenses before investing.  Fortem Financial is a registered investment adviser with the SEC.  Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks.  The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.  The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.  The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks.  The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide.  Market indices listed are unmanaged and are not available for direct investment.