The S&P 500 led the market lower on Tuesday. Volume was lower across both the NYSE and NASDAQ exchanges. A positive sign for the market as we did not record a distribution day. At the level of decline witnessed on Tuesday had volume been higher Tuesday would have been a distribution day. An ominous sign had it occurred, but it did not. Some good news is we did not see IWM lead lower. Certainly, the group has lagged for much of 2019. Tuesday was not the case. The yield curve is still somewhat inverted with the 2-year treasury yield slightly lower than the 10-year. Will we wee a recession over the next year or so is anyone’s guess, but we do not guess with our hard-earned capital. This market needs to continue to avoid distribution and move higher. Staying disciplined in our approach is key and we will simply follow where this market wants to take us.
Last week when we did see the 2-year Treasury yield slightly higher than the 10-year Twitterverse gained thousands of new yield curve gurus. We are not one of them. In the past, when the 2-year yields more than the 10-year a recession is within 6-18 months. It is a pretty good indicator for how the economy will perform. How can we blame bond traders? US-Chinese trade relations are not on solid ground and let’s not forget we have not seen a recession since the Great One. Too many forget recessions are a normal part of the economy and have been happening for a long time. As for the stock market there are no guarantees stocks automatically go lower. A recession should reduce sales and earnings across industries, but could multiples still expand? Our focus must be how the stock market reacts and everything else is just noise.
We will keep Wednesday’s morning commentary light. Keep chugging along. If you do not love the grind you will not last long in this game. Stay disciplined.
