December 2018 Newsletter
The November 6 mid term elections left us with a divided congress. Markets cheered the results but the celebration was short lived. With positive markets in the background President Trump seemed to declare victory at his press conference in what appeared to me his angriest tone yet.
We will likely have to wait until late January to get a sense of the tone of the new congress but we expect a lot of noise and volatility to persist as the new divided congress will be divided on every issue. We also see the Muller investigation and findings to have more of an impact on markets in the months to come. Something they have for the most part brushed off and ignored.
The Federal reserve has stepped back it’s early October language setting a more dovish tone stating that they now see current interest rates “just below” neutral changed from early Octobers “a long way from neutral” statement. With the new accommodative language we will look to Fridays unemployment and jobs number for indications of how tight the labor market is. Either way chairman Powell is set to captain the plane and seems to have the hard work to do of attempting to land in a way that hasn’t been done before. I feel for the chairman as he has the President breathing down his back.
With the chairman giving the markets what they want to hear, the markets need to now focus on the Tariff conflict with China. I waited for the purpose of this December newsletter posting for the US-China G-20 meet up of December 2, 2018. And at the time of this posting futures point upward as we are told that a dinner presentation has gone well and a new 90-day truce has been set giving all more time to get close to a deal.
Ironically my favorite members of the Trump administration were Gary Cohn and Rex Tillerson. After Cohn resigned and Tillerson was fired your left with the remaining yes men to the President – Pence, Navarro, and Lighthizer. When any of these guys talk the markets will trade down with trade tensions rising.
Our recommendations remain (BP) under $40.00 and we will need to rally a lot to get close to our year end target for the S&P of 2825.
(AAPL) under $167.00 is seen as strong value and is a protective play on a market that in our opinion has shown that it will not rally without the leadership of big high growth tech to lead as it has led the historic longest bull market.
We recommend selling into any year end strength as we increase our cash and defensive positions.
Positive catalysts: Earnings remain strong and are up 23% this year while the S&P is flat on the year.
Negative catalysts: Growth scare slowing GDP globally including consensus opinion that U.S. GDP may slow from 2.8% down to 2.4% in 2019.
