Since the end of September, the market has been shaken by the China trade dispute, Fed rate hikes and a government shutdown. On October 31st, I wrote "Is the Fed triggering the next bear market?" and Runnymede began taking some risk off the table for client accounts. We believe this is prudent given that we are in the 2nd longest economic expansion in history. While economic data hasn't shown signs of a recession as of yet, growth has certainly slowed and the government has less ammunition with its ballooning budget deficit. With stock market risks rising, the current administration is looking for answers and trying to instill calm, but it has had the opposite effect.
Today, Blackrock's CEO Larry Fink warned investors that the US is heading towards a "supply problem" as the widening budget deficit, expected to top $1 trillion annually starting in 2019, requires more borrowing. This is an issue that investors have never seen before. Typically government spending is restrained at the end of an economic expansion; however, this administration is stepping on the accelerator with neither party emphasizing fiscal responsibility. This could pose a huge problem if a recession hits over the next couple of years.
October has been a rough month for the stock market with the recent downdraft wiping out index gains for the entire year. The deterioration has been rapid despite a strong earnings season and overall S&P earnings increasing by nearly 30 percent. It is highly unusual for earnings and stock prices to diverge to this extent. Something is obviously deeply troubling investors, and we wonder if the Fed is triggering the start to the next bear market?
Last Friday, October 19th, Runnymede managing partner Andy Wang returned to The Reuters Building in Times Square to chat with news anchor Fred Katayama. In this segment, Fred asked Andy about a variety of subjects including market volatility, midterm elections, and sector rotation. Watch the segment below.
The Dow dropped 1300 points in a couple of days and the CNBC fear machine cranked into high gear. Even Fox Business News got into the action with the headline grabber "Biggest market crash in our lifetime coming - economist Harry Dent." Of course if you google "Harry Dent crash," he makes the same call every year so it is meaningless. The real question is: should you buy or sell the fear? The answer: it depends.
This week two prominent market veterans warned that the US could slip into recession next year. Mark Yusko of Morgan Creek Capital says that the chance is "close to 100%," while Dennis Gartman puts the probability at 50%. According to Gartman the cause will be the Fed tightening. Yusko blames trade tariffs as he said, "The trade rhetoric is one of the dumbest things in the history of all administrations and it will cause a global recession."
Today the Federal Reserve is expected to hike rates for the 3rd time this year to 2.25%. This is good news for your savings account as you are likely to see a slight boost in your interest rates; but that is no guarantee as many major banks are still paying close to zero. More importantly, you may be wondering what impact the rate hike has on your investment portfolio, especially stocks. Is this a reason for concern?
The media is focused on Hurricane Florence and its path toward the Carolinas and Virginia. Being a category 4 hurricane with 130 mph sustained winds, over a million residents are subject to mandatory evacuation due to risk of life-threatening storm surge, dangerous winds, and flooding. Our government is warning residents to take protective measures. This week also marks the 10th anniversary of the Lehman Brothers collapse; yet in the financial industry, investors are often told to stay the course and ride out the storm. Can you suffer through another bear market like 2000 or 2008 when the S&P 500 fell over 50%?
Last Friday, August 31st, Runnymede managing partner Andy Wang returned to The Reuters Building in Times Square to chat with news anchor Fred Katayama. In this segment, Fred asks Andy about a variety of subjects including trade talks, emerging markets, and why Runnymede likes service sector companies.
Yes I am swept up in the hype of the release of the movie "Crazy Rich Asians." As an Asian-American, I am hyped to finally see a major motion picture with an all Asian cast which we haven't seen since 1993's Joy Luck Club. Please go out and support the film!
But today's blog post isn't about the film, but about S&P earnings season which I'm calling crazy rich earnings. We have been bullish on the market because of the extremely strong earnings coming out of corporate America. While others have been warning about valuations (for years), remember that no bear market was caused by solely by over-valuation. How good has earnings season been? Let's take a look.
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