Three T's are driving the market sentiment and ups and downs (two of them are caused by another T). After increased volatility in which DOW was going up and down by 300-800 points on regular basis. August wrapped up where it started. So if you were enjoying your summer vacation without looking at daily ups-and-downs, you did not miss anything. Let's look at each of the T's and see where market is heading for rest of the year and 2020.
Tweets:
Tweets are the new norm on how policies are made and communicated on the fly. You know whom I am referring to. President Trump had almost made this as norm. I am sure his twitter followers know what's in his mind before his chief-of-staff. His decision on additional 5% tariffs on China, his constant criticism of Fed Chair Jay Powell or his supposed offer to mediate between India and Pakistan and his "hereby" order to American companies to move their production to USA - all of these would have been carefully thought and communicated in previous administrations. But hey, Trump is not a "normal" president and given everyone is "twitter" happy, President is just following how today's world is operating. How many of us still write letters and make a phone call to wish, congratulate or console instead of just sending a WhatsApp message? So we have to get used to policy by "tweets"
Trade:
What started as skirmish between US and China is turning out to be a potentially full-fledged trade war. Last December after Trump and Xi meeting at G20, many thought that by early 2019, trade war would be over. However after some back and forth discussions, the intensity of barbs and tit-for-that tariffs seem to be increasing. While actual trade $$ amount (~$600 Billion in combined GDP of $35 trillion) is small, the impact on sentiment is dis-proportionate. And when it comes to markets, sometimes sentiment and confidence matters more than actual numbers.
Treasuries:
It's no secret that Trump does not like Fed and it's chairman Jay Powell (whom Trump appointed). However Fed being independent institution is doing its best in ignoring Trump tweets and comments and that's good for economy and markets. At start of year, many pundits were predicting 10 year rate to be near 3% and Fed planning 3-4 interest rate hikes (I am no market pundit but I was expecting same). What changed suddenly that 10 year is yielding 1.5% and Fed is on his path to do 3-4 interest rate cuts? No one knows the answer. Rest of the developed world is swimming in negative yield. German Government is getting paid to buy it's bonds. Italy which does not even have a functioning government is able to issue bonds at 1% (lower than US government). UK is mired in Brexit mess and impacting overall sentiment in EU (watch out for British Halloween on Oct 31). Emerging countries are mess with Argentina on verge of default and slowing economies in China and India. It's ridiculous out there and shows that there is no better place than US to park your money and still earn small but positive return. No wonder world money is coming to US treasuries even at 1.5% return.
So what does all this mean to rest of year? The answer is always - It depends!
The calendar has two of scariest months (Sept/Oct) for markets followed by two of best months - Nov/Dec (2018 being exception). So if you are in market for long-term, do nothing for your existing investments. In fact when markets go down in Sept/Oct, be ready to make opportunistic investment for dollar-cost averaging. On sectors, I still like Tech and Biotech. Recently NTNX ($24), MRNA ($15), my favorite ROKU ($150), Disney ($135), Microsoft ($135) and WDC ($55) seem be holding up well and could do better than market for rest of year and 2020!
Happy Ganesh Chaturthi and Long Weekend!
/Shyam
Tweets:
Tweets are the new norm on how policies are made and communicated on the fly. You know whom I am referring to. President Trump had almost made this as norm. I am sure his twitter followers know what's in his mind before his chief-of-staff. His decision on additional 5% tariffs on China, his constant criticism of Fed Chair Jay Powell or his supposed offer to mediate between India and Pakistan and his "hereby" order to American companies to move their production to USA - all of these would have been carefully thought and communicated in previous administrations. But hey, Trump is not a "normal" president and given everyone is "twitter" happy, President is just following how today's world is operating. How many of us still write letters and make a phone call to wish, congratulate or console instead of just sending a WhatsApp message? So we have to get used to policy by "tweets"
Trade:
What started as skirmish between US and China is turning out to be a potentially full-fledged trade war. Last December after Trump and Xi meeting at G20, many thought that by early 2019, trade war would be over. However after some back and forth discussions, the intensity of barbs and tit-for-that tariffs seem to be increasing. While actual trade $$ amount (~$600 Billion in combined GDP of $35 trillion) is small, the impact on sentiment is dis-proportionate. And when it comes to markets, sometimes sentiment and confidence matters more than actual numbers.
Treasuries:
It's no secret that Trump does not like Fed and it's chairman Jay Powell (whom Trump appointed). However Fed being independent institution is doing its best in ignoring Trump tweets and comments and that's good for economy and markets. At start of year, many pundits were predicting 10 year rate to be near 3% and Fed planning 3-4 interest rate hikes (I am no market pundit but I was expecting same). What changed suddenly that 10 year is yielding 1.5% and Fed is on his path to do 3-4 interest rate cuts? No one knows the answer. Rest of the developed world is swimming in negative yield. German Government is getting paid to buy it's bonds. Italy which does not even have a functioning government is able to issue bonds at 1% (lower than US government). UK is mired in Brexit mess and impacting overall sentiment in EU (watch out for British Halloween on Oct 31). Emerging countries are mess with Argentina on verge of default and slowing economies in China and India. It's ridiculous out there and shows that there is no better place than US to park your money and still earn small but positive return. No wonder world money is coming to US treasuries even at 1.5% return.
So what does all this mean to rest of year? The answer is always - It depends!
The calendar has two of scariest months (Sept/Oct) for markets followed by two of best months - Nov/Dec (2018 being exception). So if you are in market for long-term, do nothing for your existing investments. In fact when markets go down in Sept/Oct, be ready to make opportunistic investment for dollar-cost averaging. On sectors, I still like Tech and Biotech. Recently NTNX ($24), MRNA ($15), my favorite ROKU ($150), Disney ($135), Microsoft ($135) and WDC ($55) seem be holding up well and could do better than market for rest of year and 2020!
Happy Ganesh Chaturthi and Long Weekend!
/Shyam
