June 17th, 2019

Below is a snapshot of last week’s market performance and what to watch in the weeks ahead from Chadd Mason, Cabana CEO and co-founder

The rebound from the May selloff continues. After dropping 6.4% in May, the S&P 500 has reclaimed 4.5% of that loss in just the first two weeks of June. In doing so, that broad market index, as well as the Dow Jones and Nasdaq, have reclaimed their 200-day moving averages. We now sit approximately 2% from the highs seen in April 2019 and September 2018.

Some of the rebound over the past few weeks is likely due to oversold conditions that developed in the steep May drop. The rest is the result of the Federal Reserve hinting at a rate cut to deal with the headwinds felt from the trade tariffs with China.

For the first time in several years, corporate earnings are beginning to crack. The weakness is presently contained to the manufacturing sector, but it is a concern worth watching. Morgan Stanley just came out with a report that stated business condition sentiment dropped 32 points this month and is now at the lowest level since 2008. This indicator is also likely suffering due to the instability in present government policy. While threats of economic war and tariffs (taxes) may be fun for politicians, they are not fun for business owners who need to know the rules of the game they are playing. Our central bankers are aware of this and seem to be willing to step in.

Market participants all over the world are waiting for the conclusion of the Federal Reserve meeting on Wednesday. The bond market is pricing in a 25% possibility of a rate cut. We will have to wait and see if we get one – or at least additional comments suggesting dovish monetary policy ahead. The long and short of it is that investors are expecting some help to deal with all that is in front of us.

The rest of the world markets continue to lag behind the U.S. While we saw some outperformance in foreign markets during the first quarter of this year, it has now abated, and we have returned to the same posture that persisted during most of 2018. I would generally feel a lot better if there was some strength somewhere else in the world.

We are in the process of reallocating in response to improving technical conditions during the past week. We are moderately bullish.


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