Date: August 7, 2019

Hold on to Your Hats

As you know, volatility rarely builds slowly. It typically happens all at once. I went to bed last night and saw overnight trading indicating a lower open by 100 Dow points. When I woke up, that had shifted to up 100 Dow points. I showered, got dressed and ate breakfast. The Dow was then indicated to open lower by 300 points as global bond yields collapsed.

Why do we care about this?

Lower bond yields are mostly indicative of weakness in the economy, however contrary to what you may hear or read in the media, this is not an absolute. The modern generation low took place in July 2016 when the economy was nowhere near teetering on recession. It’s really the outsized moves we are seeing today that is causing angst and volatility as these moves lead to dislocations and forced movement by big money.

Stocks bounced back decently on Turnaround Tuesday to stem the tide. I still think, as I wrote last week, that Dow 25,000 or so is the downside risk. When this pullback is cleaned up, my forecast remains for another run to all-time highs. Perhaps that run will yield cracks in the pavement and a crumbling foundation to lead to more significant downside, but it’s not worth anticipating. This has been the single most hated and disavowed bull market of all-time and we continue to see the masses turn negative during every single decline.


Paul Schatz, President, Heritage Capital