February 2019 Market Commentary

Wow, this year isn’t going as many investors and investment managers predicted.  But that might be a good thing.  I’m often in touch with several other money managers during the month to compare notes about what the market is doing and how others are responding to it.

Surprisingly, I’ve found that I’ve been one of the more aggressive managers so far this year, getting fully (or nearly fully) back into the stock markets as early as the beginning of January.  In many cases that means we’ve made up for any downside losses from 2018, while other investors out there are still trying to play catch-up.

What makes this interesting to us is that it seems many investors (both institutional and retail) haven’t yet gotten back into the market after playing it safe at the end of last year.  At some point, we could see some FOMO (Fear of Missing Out) drawing more money into this market to make it go even higher. It does appear that we’ve reached what many are calling “resistance” with the S&P 5001 very close to 2800 (Blue line).  But then, many who missed out were calling for “resistance” to stop the market around 2650 (Red line) before reversing and going down again.  It hasn’t happened.

In this month’s chart, we look at these two resistance areas as well as potential target areas and where we are in the big picture.  Below is a two-year chart of the S&P 500 with three colored lines.  After the market hit lows just before Christmas, there were expected obstacles in the rebound.

The Red line is where the market was expected to fail and continue the down-trend that started in Q4 of last year.  But it didn’t.  After bouncing around that level for a few days in late January of this year, we’ve now moved up to the Blue line.  This is the area where rebounds had failed in Q4 and continued lower.  Back then, it seemed possible that the Red line would be the bottom.  But it wasn’t.  Now, if money starts flowing into the stock market (as I mentioned above) that could give us enough push to make it to the Green line.  The Green line is the area of the S&P 500’s all-time high.

 

Two Year chart of the S&P 500 w/3 Price Levels – StockCharts.com2

Our V33 Indicator remains in “Defense” mode for the first quarter of 2019.  However, due to the strength we saw coming into the beginning of 2019, we stayed invested (or got even more aggressive) in many of our core models.  We continue to watch for the first sign of trouble to start lowering our stock market exposure, but so far we just haven’t gotten to that point.

Bonds – The Aggregate Bond index (AGG) is also doing well so far this year, currently up 1.34% YTD (ishares.com).  Much of bonds’ direction in 2019, we expect, will be dictated by what the Federal Reserve decides to do with interest rates and their balance sheet adjustments.  So far, we don’t see much sign of fear in the bond market.  But it is something we’ll be watching closely.

On another note, we can’t find a good reason why the yield curve stopped dead in its tracks just before inverting (there are always “reasons” being touted, but we find most are just guesses).  The theory is that an inverted yield curve signals the next recession over the next few quarters.  But we find it curious that it stopped just short of inverting (referring to the difference between 2YR and the 10YR US Treasury Yields).  This could suggest that a recession could be pushed further down the road, for now.  We’re very curious to see how this plays out.

So far, we’re enjoying 2019 as much as we can, while we can.

Thanks for reading!


1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
 
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.
 
3 V3 is a proprietary indicator developed by Shadowridge Asset Management, LLC. Its objective is to take several market sentiment factors and project how to view US stock market investment in the following quarter: for Safety, for Balance, or for Growth.