February 4, 2019

“Well, it’s not exactly Mai-tais and Yahtzee out here – but let’s do it.”

–Actor Nicholas Cage in “Con Air” (1991)

In one of the great scenes from the movie “Con Air,” Nicholas Cage is playing an undercover agent who says, “It’s not exactly Mai-tais and Yahtzee out here,” when describing the volatile situation he was facing.

I love this line, because it speaks of a cool-headed guy conducting himself smoothly within the midst of a situational meltdown. And Nick Cage always came out on top, because the screen writer made it happen!

In the real world – the world of global finance and high-frequency trading that dominates over 70% of the average daily volume of stock market activity – we often feel like we’re in the midst of a movie being played out in real time. I find it amazing that on Christmas Eve (!), investors were beyond convinced – and I’m talking about investors with billion-dollar account balances – that the bottom was falling out from under them, but we can thank the algorithm-driven program traders for that dramatic Christmas Eve.

So, after getting pushed into correction territory for a brief period, the stock market found its footing after the Fed came to a new corporate conclusion, that its members did not want to go down in history as “the gang that killed the bull market.” This is what I hate about many who call themselves “analysts.” They get fixated on a myopic plan – in this case, a “dot plot” – and get all revved up with their fiscal narratives about containing inflation (of which there is hardly any), and then turn tail and run because they were out of sync with reality. Then, they try to sound calmly knowing, in order to preserve a smidge of street cred.

The Fed swallowed their lofty pride and reverted to a full-on ‘neutral’ position last Wednesday when they issued a post-FOMC policy statement that used the word “patience” no fewer than eight times! Really? Are we now in a new era of Twitter-induced, knee-jerk policy making? I guess so, and that sows the seeds of further volatility, when any ultra-short-term mass-perception can overly sway market momentum.

Hey, don’t get me wrong. I’m thrilled that the S&P 500 has rallied back from 2,346 to 2,706 as of last Friday. That’s 360 points off the bottom in five weeks, or +15.35% from trough to present. The S&P 500 is now closing in on its 200-day moving average, which stands at 2,740. It now seems that all past fears about the Fed raising interest rates and the “global slowdown of GDP growth” are suddenly unwarranted.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

But alas, in my humble view, I’m not so sure that a “Mai-tais and Yahtzee” break is a done deal.

“Confused” Doesn’t Begin to Explain the Current Investment Landscape

First of all, let’s commend the optimists (like those here at Navellier) for usually looking at the world’s collective situation as a “glass half full.” Optimism is a hard sell, especially within the mainstream media, which badly wants to crucify the Trump team. But last Friday’s jobs report showed non-farm payrolls rising by 304,000 jobs versus the 170,000-job consensus estimate. Am I missing something? Since when did prosperity become bad news? That was an eye-popping number, because it showed that people who had been on the sidelines for months (if not years) are re-entering the job market. And that is beautiful.

However, there is still a lot of wood to chop if this market is to regain a clear “bull trend,” which would imply a higher level than where we currently trade. Based on uncertainty surrounding the structure of the U.S./China trade deal, the terms of the Brexit deal, the on-going politics of Trump versus the Washington establishment, and the “flip-flop Fed” (which now might have to walk back their “neutral narrative” following a blistering jobs report), I’m not so sure the market doesn’t retrace some of its recent gains.

If traders are ready to sing “Happy Days are Here Again,” then why is the closely-watched 10-year/2-year spread moving lower once again? The bond market is at least 10 times larger than the stock market, and it votes every day. While the Fed is doing a 180-degree turn on its policy narrative, and stocks are rallying, the bond market has not been celebrating – and I find this worthy of keeping a close eye on.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

And what’s up with the rally in gold? Out of nowhere, gold prices are spiking higher on what I can only imagine as a potential currency dislocation, with the pound sterling dropping due to fears of a hard Brexit and failed trade talks with China, both of which would be highly disruptive for financial markets.

We’re in a weird time, almost like Rod Serling’s “Twilight Zone,” of which I was an avid watcher for years. Being now 59, my high-school Friday nights in the late 1970s were always the same – football, followed by pizza and party, then getting home in time for SNL and The Twilight Zone. Life was simple.

My weekly musings here aren’t as bubbly positive as they usually are, I admit, but at the same time, I (like many of my decades-old colleagues in the financial industry) are just trying to read between the lines as to whether the pain endured from October 4 through December 24 was completely unwarranted, or whether it was a “canary” in the global coal mine. Time will tell, it always does, and in the meantime, I’ll close by saying, “May the stock market damn all the torpedoes and make full steam ahead” for 2019!

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license.


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