Yesterday was a remarkable session that left investors asking which part of the day was rational and which was irrational.

I think there was undoubtedly an overreaction to central bank action that further diminished credibility at the Federal Reserve. I get our central bank has to take greater care than those of New Zealand, India, and Thailand. However, the world is taking action that leaves an unfair spread.

I do think the drastic action from central bankers with stronger economic ties to China suggest that the economy is in much worse shape than advertised.

Meanwhile, the strong U.S. dollar is wrecking more havoc on multinational companies, compounding one of the biggest reveals of the earnings season. This season has seen companies with more than 50% of its business outside the United States getting hammered, as revenues and earnings have declined sharply from last year.

Multinational companies led by boring names, such as Kroger (KR), McCormick (MKC), and Clorox (CLX) in Consumer Staples was the best performer of the session.  

S&P 500 Index	+0.25%
Communication Services (XLC)	+0.23%
Consumer Discretionary (XLY)	+0.44%
Consumer Staples (XLP)	+1.46%
Energy (XLE)		-1.23%
Financials (XLF)		-0.98%
Health Care (XLV)	+0.23%
Industrials (XLI)		-0.01%
Materials (XLB)	+1.38%
Real Estate (XLRE)	+1.36%
Technology (XLK)	+0.81%
Utilities (XLU)	+0.72%

Energy was the biggest loser among the S&P sectors followed by Financials. With more rate cuts on the horizon, banks will continue to feel the pressure. On that note, going into 2018 and 2019, Wall Street called for banks and financials to lead the way, and that just hasn’t happened. I don’t think bank weakness is an indictment on the broad economy, but it’s not great news either.

The SPDR S&P Bank ETF (KBE) has 91 stocks with a combined market cap of $1.7 trillion; here are the top holdings:

New York Community Bancorp Inc. (NYCB)	1.95%
First Horizon National Corp (FHN)	1.76%
Synovus Financial Corp (SNV)	1.76%
Northern Trust Corp (NTRS)	1.68%
Signature Bank (SBNY)	1.68%
Wells Fargo & Co (WFC)	1.68%
Western Alliance Bancorp (WAL)	1.67%
Bank of New York Mellon Corp (BK)	1.66%
U.S. Bancorp (USB)	1.66%
Bank of America Corp (BAC)	1.65%
Regions Financial Corp (RF)	1.65%
JPMorgan Chase & Co (JPM)	1.64%
Fifth Third Bancorp (FITB)	1.62%
Citizens Financial Group Inc. (CFG)	1.62%
PNC Financial Services Group Inc. (PNC)	1.62%

While that was certainly a “wow” session, the market breadth wasn’t as impressive. There were more decliners than advancers on the NYSE and the NASDAQ. Moreover, new lows outstripped new highs.

NYSE

• New highs 145
• New lows 234

NASDAQ

• New highs 83
• New lows 216

The bright spot, however, (underscoring a desire to be in the long-established momentum names that drive the NASDAQ), was the up volume of 1.5 billion shares against the down volume of only 958 million shares.

When the Dust Settles

It’s clear the market is on edge, and at any given moment, a tweet or breaking news could dramatically change everyone. The fundamental story is what doesn’t change. Sure, these market swings might take the edge off consumer confidence and spending - that would only be temporary, as it was from the June’s dip to July’s pop.

On the one hand, we could say the dust isn’t settled until we see if the administration goes through with the September 1, 2019, tariff hike on $300 billion in Chinese goods and services. This would ratchet the trade fight higher, and many believe it means a 25% levy would only be a matter of time.

Portfolio

We have cash in the model portfolio, and we are eager to put it to work.

Communication Services	Consumer Discretionary	Consumer Staples
1	3	1
Energy	Financials	Healthcare
1	2	1
Industrial	Materials	Real Estate
2	3	1
Technology	Utilities	Cash
2	0	3

Comments

I am not seeing the problem... If the markets are, constantly, hitting records, and still trending upwards, then what is the big deal with sustaining a fluctuation, or two, on the way up... Andrew B Newallo on 8/9/2019 11:02:30 AM

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