CMW MONTHLY MONEY PULSE™

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June 28, 2018
CMW MONTHLY MONEY PULSE™

We’ve passed the summer solstice and are fully into the summer slumber…or are we? If so, this market seems to be having a fitful time of it!

After ominously crashing through the all-important Dow two-hundred-day-moving-averaging floor, this was apparently all the proof needed that US stock market is fragile once again. Never mind that the Dow has passed through this supposed floor like a ghost many times this year. It just never happened at the precise moment of the closing bell. Early Wednesday, we read from Barbara Kollmeyer and Anora M. Gaudiano, of MarketWatch:

“Trade-related headlines continued to dominate global equities. The whipsawing moves in U.S. futures earlier reflect nervousness over trade tensions,” (italics added for emphasis).

Yes, “whipsawing” does nicely presage the morning activity of the Dow, which is now up more than 1.0% as we write this! It hardly seems like a month has passed since news of the day was the ending or pending N. Korea Summit, Kilauea’s distressing eruption (still a large concern for those dealing with the aftermath in Hawaii, but certainly off the national headlines) and all those other noisy narratives the media was lobbing then.

Today it’s all about trade wars again, which have rattled the market off and on for most of this year. In fact, we’d suggest no other story has carried so much power to move the needle on a daily basis this year. We stress, daily, because it’s been a terrified market one day and the next the dreaded trade wars are like the lost memory of a dementia patient; completely forgotten.

“The market is trading more on sentiment than fundamentals lately, which means moves are likely to be fickle and short lived.” said Liz Young, senior investment strategist at BNY Mellon Investment Management.

So what does this mean to the market and to us long term investors today? Again, we look to the bigger pieces of the puzzle and a longer time frame to hold our footing and keep our grip. Keep in mind Wall Street and megaphone media are dishing up fear this year. Think of a bunch of boxes all holding FEAR. One is named “Trade Wars,” one is “Inflation” and another is “Interest Rates”. With this in mind, let’s look back to that contrast last month between the one benchmark the media trots out daily as The Market – the S&P 500 and the other 90% of the real US stock market:

  • While the S& P splutters around 2.5% YTD, US Large Growth stocks have actually advanced from 6% last month to 9.6% YTD!
  • Technology has edged over 13% YTD.
  • A month ago we reported that US Mid and Small Growth stocks stood at 4% and 7.5% respectively. Yet this week these have moved ahead to 7.4% and 10.75% YTD!

Where’s the megaphone for that story? Forget it! You can’t sell GREED when FEAR has the day!

So, what was true a month ago is even truer today. A pretty narrow sample of US stocks have been cited to give the false impression that the US market has gone nowhere since the short-lived late January correction. In reality, only US Value stocks have been asleep. If you haven’t owned both Growth and Value stocks in separate buckets of different company sizes, your portfolio was actually hurt by the underperformance of about half your stocks.

On the other hand, if we have owned both Growth and Value stocks, in separate buckets of Large, Mid-size and Small company funds (6 buckets) as we should; not only do we see the wonderful difference, but we grab the opportunity hidden in this difference. How? We sell some from over-flowing buckets which have outgrown their space and buy more to refill our underperforming buckets that are on sale!

And, what do you know, we’ve sold high and bought low after the fact, with no charts, or graphs, moving averages or any other fashionable favoritism. This is the routine process we call rebalancing. It seems boring, but it can actually boost returns while minimizing volatility (risk) for a global, strategic asset allocation account.

So, where to go from here and what about the rest of the year?

Ataman Ozyildirim at The Conference Board noting the most recent increase for the US Leading Economic Indicator (LEI) said, “The U.S. LEI still points to solid growth….”

Behind the US, the next two largest global economies, China and Japan, also saw their LEI’s increase while Europe’s and the overall Global LEI have also continued to rise.

So, we remain optimistic toward the economy and the markets for this year and into 2019. As we come to the end of this quarter and this month, not historically a good month for the market since 1980, we think it’s been a sturdy performance given the heavy sentiment holding sway over Wall Street.

As always, we remind our readers that anything can happen that we can’t see on the radar now. Even issues we can see but don’t consider too worrisome can turn out more negative than expected. Yet the “radar” and other instruments we use to gauge the economy remain useful.

As we go to press (Thursday 6-28-18), Peter Canelo, Chief Investment Strategist, and Jim Kelleher, Director of Research for Argus Research have concluded, “In short, we believe the economic environment remains positive; the investing environment can accommodate moderately higher (interest) rates; and our…model argues for more good times ahead for this durable bull market.”

We will wait to see what July brings as it has historically been the better of the summer months. June gives no pattern for predictors to ponder and prognosticate. Until then we’ll keep our eyes on the economy and your portfolios!

Have a great July!

Indexes are listed in respective order to their reference above: DJ Industrial Average TR USD; S&P 500 TR; DJ US TSM Large Cap Growth TR USD; NASDAQ 100 Technology NTTR TR USD; DJ US TSM Mid Cap Growth TR USD; DJ US TSM Small Cap Growth TR USD; DJ US TSM Large Cap Value TR USD; DJ US TSM Mid Cap Value TR USD; DJ US TSM Small Cap Value TR USD. These materials have been prepared solely for informational purposes based upon data generally available to the public from sources believed to be reliable. All performance references are to benchmark indexes. Performance of specific funds will vary from respective benchmarks. Past performance is not an assurance of future results. Each index cited is provided to illustrate market trends for various asset classes. It is not possible to invest directly in an index. These materials have been prepared solely for informational purposes based upon data generally available to the public from sources believed to be reliable. All performance references are to benchmark indexes. Performance of specific funds will vary from respective benchmarks. Past performance is not an assurance of future results. Each index cited is provided to illustrate market trends for various asset classes. It is not possible to invest directly in an index.