When Fear And Predictions Of Doom Mask Stealth Market Rallies And Rebounds

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Posted: Sep 09, 2019 10:18 AM
When Fear And Predictions Of Doom Mask Stealth Market Rallies And Rebounds

Source: AP Photo/Richard Drew

I’ve been involved with the stock market for more than three decades, and I’ve seen over and over where a spat of fear and loud predictions of doom mask stealth rallies and rebounds. That’s what happened in the past two weeks, where commentators pointed to volatile and pending tariffs as signals of a correction.  

Amid the most intense hand wringing, the market turned, and we begin this week in the shadows of all-time highs for many equity indices.

The rotation out of bonds and equity safe havens, and the unlikely leadership from Consumer Discretionary and Industrials paved the way for the bounce. But now, we are in that post-employment report period that coincides with the end of the earnings season and the beginning of the Federal Reserve quiet period. 

The good news is that the Dow held the long-term trendline, closed above its 50-day moving average and, is coming out of a cup & handle formation. But for a news-driven market, will that be enough?

Late last week, the administration came one step closer to releasing Fannie Mae and Freddie Mac conservatorships, a move many consider controversial, but I think it’s long overdue. 

The Federal government began bailing out Freddie Mac and Fannie Mae in the third quarter of 2008 through the first quarter of 2012. Since then, there has been only one request for funds in 2017.  Meanwhile, repayment has been made through quarterly dividend payments that now significantly exceed the amount borrowed.

GSE Bailout History

Freddie

Fannie

Total

Draw

$71.64 billion

$119.83 billion

$191.98 billion

Dividend

$121.50 billion

$184.70 billion

$306.20 billion

 

Approach

We added a new fresh Technology name to the model portfolio, lowering cash but everyone should have enough dry powder to add new ideas.

Communication Services

Consumer Discretionary

Consumer Staples

1

2

1

Energy

Financials

Healthcare

1

1

2

Industrial

Materials

Real Estate

3

2

1

Technology

Utilities

Cash

3

0

3

 

Today's Session

Futures are higher on continued optimism around U.S.-China trade relations. Earlier, Treasury Secretary Steven Mnuchin said he takes it as a sign of "good faith" by China that officials will restart trade talks, which are expected to begin in early October. Separately, Mnuchin said he didn't see signs of a U.S. recession.

AT&T (T) is one of the most active stocks in pre-market hours after Elliot Management revealed a $3.2 billion stake in the company, as well as a plan that could bring a 65% gain in the stock by the end of 2021.