July 17, 2019

 bl-jul-17-01

The market is firmly above the HCM-BuyLine Alpha, as you can see from the chart above. Equity investors are beginning to shift focus from macro concerns to micro as earnings season begins. A near-term pullback and pickup in volatility remain likely given the surge into July and the consensus view that earnings will be weak, if not bleak. What to do?  Our technical view of the longer-term market cycle is positive. We see pullbacks as an opportunity to increase exposure in many secular leaders such as Technology and Cyclicals, which continue to carve out bottoming profiles.

Short-term pullback remains likely, but cycle backdrop remains bullish through year-end and well into 2020. Daily momentum indicators remain overbought and continue to suggest a near-term pullback is likely to develop as Q2 earnings season begins. However, we expect pullbacks to be shallow (3-4%) given the longer-term cycle data, tracking 2-4 year shifts, is still early in an upturn from the lows in Q4.

bonby-JUL-17-01

Bonds are still in a nice uptrend, as evidenced by the HCM-BuyLine Alpha above, which is tracking the bond market nicely. We do expect the Fed to drop rates at the next meeting, which should add additional support for bonds. Global stocks outside of the U.S. have tended to increase in the 12 months following first Fed rate cuts.

  • The Empire State General Business Conditions Index rebounded 12.9 points in July to 4.3, indicating a modest improvement in factory activity in the region. The consensus was for a 9.6-point advance to 1.0.
  • The declines in new orders and unfilled orders moderated, but shipments growth continued to slow, and inventories contracted.
  • Employment shrank at the fastest pace in nearly three years, although the workweek lengthened somewhat.
  • The outlook for growth in the next six months improved slightly but remains notably weaker than in late 2017/early 2018

Wealth Watch

Sign up for our weekly news to hear from CEO and portfolio manager, Vance Howard.