Date: June 28, 2019

HUGE Crosscurrents on Friday

Interesting day on Friday. We have end of week, month, quarter and first half of 2019. The skeptic in me says some portfolio managers could play some games to mark up their positions. I know. I know. You are SHOCKED to hear this. I mean, money wouldn’t cause people to do unscrupulous things, right?

Next, we have the last day for positioning ahead of the G20 meeting in Japan where Presidents Trump and Xi will meet tonight to discuss the tariff tantrum. I really would be surprised if Trump doesn’t basically lay down and meet some of Xi’s demands before talks can be restarted. I think Trump sees a weakening economy that will only be made weaker by all these tariffs. With a reelection campaign kicked off, the president can ill afford even the whiff of a recession between now and election day. I think he has a steep uphill battle in that regard.

The Russell Company is holding it s annual rebalance today when all of the Russell indices will have new and updated constituents with the most popular being the Russell 2000 Index of small cap companies. Over the years, I have noticed some “curious” behavior in the Russell 2000 on rebalance day. Hundreds of billions of dollars are potentially involved and portfolio managers have to decide whether to rebalance all at once, over the course of the day or over a few days.

Friday also ends one of the weakest weeks of the year historically, however, the bears really only had one good day to show for it. Finally, Friday also ends a very short-term trend where small caps outperform large caps. Lots of crosscurrents for sure, but the real fireworks look to be in July with the outcome of the Trump/Xi meeting, June employment report and FOMC meeting at the end of the month.

Stocks certainly are expecting some favorable outcomes, but I wouldn’t say there is a ton of air under the stock market. Our models are on the defensive side for now, but I don’t see more than a single digit pullback if it even comes. I just don’t think it’s a great time to be loaded up with risk, regardless of what happens next week.

*Side note: This update was supposed to go out this morning and I thought it had. Sorry about that!



Paul Schatz, President, Heritage Capital