Market Update: June 11, 2019

By 2019-06-11 October 3rd, 2019 Market Commentary

With the US stock market moving up during the last week, it is expected to see short term buy signals. The question is whether or not those buy signals are sustainable.

For a reliable risk management strategy we tend to focus on finding the weakest points in the market, which allows us to understand where the risk may come from and be ready to deal with it.

  • S&P500 30 day Implied Volatility is trading at a discount vs realized volatility, which can be a sign of complacency. This can be a problem if investors are chasing lower highs. We’ll keep monitoring.
  • Copper and commodities are still trending lower. Remember, copper’s behavior is typically useful as a leading indicator of economic health and the economic cycle. Usually, rising copper prices mean rising demand for copper and thus, a growing global economy. Slowing demand for copper may be an indication of an economic slowdown or even recession ahead. The trend in commodities is important, as it serves as a measure of inflationary conditions. Right now, despite the Federal Reserve’s rhetoric, it seems there is no inflation to be concerned about in the U.S.
  • Last night China recovered the losses from last week but is still building lower highs. Also, it seems the US and China are not even close to a trade agreement yet.
  • The optimism over a China trade agreement is being replaced by optimism over the Fed.
  • The bond market is sending a clear message of decelerating GDP growth and inflation and the need to cut rates to avoid a recession. It’s beginning to look like a very late economic cycle.
  • The Fed seems to begin to understand the message, but equity investors seem to be underestimating the importance of (1) the timing and (2) the size of the rate cut. Both are extremely important, if we are attempting to avoid a recession. Is the market getting ahead of itself?

But this is exactly what equity markets do. Most of the time, they get ahead of themselves and when reality hits, they just crash, declining faster than they rise.

It is really good to see the S&P500 back above the 50 day moving average, but on the other hand, the Nasdaq recovered it yesterday and lost it before the closing. Today, it opened above the line and just lost it again.

In summary, we see and acknowledge the current short term buy signals. However, what we aren’t too excited about are the fundamentals of the economy and some of the leadership in the market. Yes, the equity market is trending up for now, but the bond and commodity markets seem not to agree. So far, this is a market for nimble traders.

Don’t forget that you can read about this and more on the Greenwich Creek Capital website. Also, if you have any questions, you can email us at our email.

Saul A. Padilla, RIA

Saul A. Padilla, RIA

Registered Investment Adviser and founder of Greenwich Creek Capital Management LLC, bringing over 37 years of experience in managing discretionary and non-discretionary investment portfolios for wealthy families and institutions. His main focus is to protect invested capital by re-balancing the allocation of cash, equities, fixed income and commodities, while closely monitoring macro-economic indicators and market trends to determine the transition phase between the completion of a Bull Market and the beginning of a Bear Market. He started his career in early 1987 mainly managing family financial investments.