Date: May 9, 2019

Pullback Continues? All Eyes on Twitter. REALLY???

Lots of intra-day movement this week after stocks peaked on May 1 when the Fed concluded their two-day meeting. After 30 years in the business, I keep saying that few things surprise me anymore, but I have to say that watching traders and market participants glued to Twitter for any sign of tariff walk back by the president is certainly a first for me. I can’t imagine what the great investors of yesteryear are thinking as they down on us from up above. Are the masses really hanging on every tweet from the leader of the free world? Apparently so.

At this point, we have now seen the largest pullback since the epic Christmas low and it’s not even 4% yet. I am already seeing some preliminary signs of a low although they would be much better if stocks had a few more down days. You already know my conclusion. This is a normal, healthy and routine pullback that should be bought. The bull market isn’t over and it certainly is not a bear market as bond guru Jeff Gundlach continues to espouse. I like Jeff’s work and respect his track record of success in bonds, but he is way out of his lane regarding stocks as he usually is.

From here, I am going to offer two scenarios which I imagine your response to be “Well, DUH.”

1 – Stocks bottomed this morning and should begin a rally towards the old highs.

2 – Stocks have another few days to a week lower before bottoming.

I think those are the most likely paths to the end of June. The next rally should see tech, financials and transports lead which are all “risk on” sectors. The rally in high yield bonds shouldn’t be over either. Things still look pretty good, regardless of what may or may not be tweeted while I sleep. Friday should be a volatile day as we will either see Trump postpone the new tariffs and cause an early rally or forge ahead and then see some early weakness. I will continue to buy weakness.

In closing, I find the timing of the new tariff tiff oddly curious, coming on the heels of the Fed not accommodating Trump’s dovish wishes. As stocks pulled back, the odds of an interest rate cut towards the end of 2019 to early 2020 roe to 75%.



Paul Schatz, President, Heritage Capital