Investment Commentary & Outlook - April 9, 2019

Even though the S&P 500 is off to its strongest start in almost a decade, Lipper reported that stock mutual funds had outflows of $39.1 billion in the first quarter. Some of these outflows could have been attributable to ETFs capturing more market share, but the real reason appears to be that companies in the S&P 500 repurchased $227 billion of their outstanding stock in the first quarter according to FactSet. We should add that in the first quarter of 2018, companies in the S&P 500 repurchased $143 billion according to FactSet, so stock buy-backs actually soared 58.7% in the first quarter! There is no doubt the low interest rate environment is boosting these stock buy-backs in addition to the Trump tax cuts.

Our friends at Bespoke like to follow the “smart money” on Wall Street and noted that in January and February these smart folks chose to buy during the last hour of trading between 3 pm to 4 pm EST. However, in March there has not been much buying pressure in the last hour of trading, which is raising concerns that the smart buyers have apparently turned into “patient” net sellers. Overall, we think that the stock market is getting much more selective, due largely to the anticipation of a rapid deceleration in corporate earnings for the next three quarters.

Furthermore, thanks to the continued Brexit chaos, interest rates continue to fall around the globe. There is no doubt that between the economic slowdown in both China and Europe interest rates in key global markets will remain near historic lows.

When key interest rates approach 0% or become negative rates like they are in the Eurozone and Japan, then quantitative easing is the “last resort” to stimulate economic growth. The fact that the European Central Bank (ECB) is gearing up for more quantitative easing is actually very scary. In the meantime, all that quantitative easing in Europe and Japan just fuels more stock buy-backs, since interest rates are so low around the globe. Low rates in . . . . read more

Download the Market Outlook Letter — April 9, 2019