November 2018 Market Commentary

It’s been a rollercoaster of a ride so far this November.  The S&P 5001 has been up, down, and is now back just above where we started the month (stockcharts.com).  We remain hopeful and optimistic that we’ll see the famed “Santa Clause Rally” that often occurs in the second half of December.  Historically, since 1950, the US stock market indexes finish the month of December positive roughly 72% of the time (source: Stock Trader’s Almanac).  I don’t know about you, but we like those odds.

If there is one thing we are watching right now: how far the Federal Reserve is willing to push interest rates.  We perceive the possibility of the FED pushing too hard and nudging the economy into recession – which often follows a yield curve inversion (we’ve mentioned this in previous months).  However, just this week, there was an announcement by the FED that “the central bank’s benchmark interest rate is “just below” neutral” (cnbc.com).  To us, this suggests they could potentially stop short of sending the economy into recession (at least for now).

A bright spot in the past two more volatile months, at least in contrast to what we saw in 2017, has been the Health Care sector.  We’ve shifted our core sector holdings into various versions of this sector for the past few months, and have found this has added resilience during the market choppiness.

One more chart that is giving us some hope for the next few weeks is the Dow Jones Transportation Index (see below), as we find it tends to lead the market’s direction up (or down).  The current price is above the 20-day moving average (roughly one month of movement), and the Chaikin Money Flow (CMF) shows that money flow is positive into this index.  Both are potentially good signs if this does indeed lead the market, in this case, higher.

 

Six Month chart of the Dow Jones Transportation Index w/20 Day Moving Average and CMF – StockCharts.com2

 

Our V33 Indicator remains in “Growth” mode to finish the 2018 year.  What we’re now curious to see is if a December bounce back is strong enough to keep us invested in the market going into January 2019, or if indicators suggest to play it safe (much like we did in the first quarter of 2016).  Only time will tell.

Bonds – The Aggregate Bond index (AGG) remains negative for the year, currently sitting right around -1.89% (ishares.com).  This year has not been kind to the perceived “safe” money sector.  And we are now seeing weakness in the few bright spots we’ve owned for most of the year, primarily Bank Loans and High Yield Munis – both of which we have sold or are selling off through the end of the month.  For now, it appears that cash is king and with Money Market funds finally paying a decent yield, in some cases that makes more sense than keeping invested money exposed to bond market risk.

We hope everyone has a fantastic holiday season, no matter how or where you celebrate!!

 

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.