The Fund is about 95% invested in short-term bonds. I sold stocks as sell limits were triggered as money appears to be flowing out of growth. It has been a difficult environment for growth investors as leading stocks after the 12/23/18 low get hit with waves of selling due to profit-taking and short-selling which tend to suppress prices even further. I am cautiously optimistic.
The trend is still up but stiff resistance is just ahead. The S&P 500 Index (large-caps) is less than 1% away from an all-time high. However, the Russell 2000 (small-caps) is about 10% from its all-time high and I consider that a yellow caution flag. The small-caps can underperform the large-caps for a short period, but I prefer to see the small-caps lead on a relative basis. A small-cap dominance indicates to me that investors are okay with taking on more risk. However, that does not appear to be the case currently. It could be that the market is predicting a favorable trade deal with China and that could benefit the large-cap exporters more than domestic small-cap companies. Bottom line, the trend is still up but I would not be surprised to see a “pause” before the market truly breaks out of this V-shaped pattern.
Defensive sectors like consumer staples, healthcare and utilities are not leading. This tells me that the market is not concerned with economic growth slipping into a recession as it was in Q4. Healthcare related stocks took a beating last week as presidential democratic leaders utter words of “free” government health care for everyone. The market viewed that as a huge negative for profitable public healthcare companies having to compete with government run healthcare that does not operate under a profit incentive. I do not think this will come to fruition, but the market was certainly concerned.
The Fed is on our side. After the Fed’s “about face” last December to not raise rates as it had planned in October, the market has been “off to the races”. Global Quantitative Easing (QE) seems to be the dominant theme and I do not see any signs of this “money printing” experiment to end anytime soon nor do I see any chance of the Fed to raise rates in the near future. Junk bonds are trending higher indicating to me an “all-clear” signal as it seems investors are complacent with taking on more risk. Corporate buy-backs are near all-time highs which artificially boost earnings and suppress Price to Earnings (P/E) ratios. However, I believe the market has already factored this into the “price” and the “price is always right”.
It is all about winning! I believe that President Trump will be re-elected for a second term in 2020. The Mueller Report indicated there was no collusion between Trump and the Russians and the market did not seem to care. It could be that the market already knew there was no collision and therefor no grounds for impeachment. I believe Trump’s pro-business policies will help the stock market prices rise and keep the economy growing strong so that voters who typically “vote their pocket books” will cast a vote for Trump!
Bottom line: The trend is up but we are nearing significant resistance, so I expect some “choppiness” as we approach significant resistance and digest earnings season. I believe the market is digesting the V-shaped gains and may resume higher ground in short order.
With great power the apostles continued to testify to the resurrection of the Lord Jesus. And God’s grace was so powerfully at work in them all. Acts 4:33
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Important Risk Information
Mutual Funds involve risks including the possible loss of principal.
The Fund may hold cash positions when the Adviser feels that the market is not producing returns greater than the short-term cash investments in which the Fund may invest. There is a risk that the sections of the market in which the Fund invests will begin to rise or fall rapidly and the Fund will not be able to sell stocks quickly enough to avoid losses or reinvest its cash positions into areas of the advancing market quickly enough to capture the initial returns of changing market conditions. The Adviser’s judgment about the attractiveness, value and potential appreciation of particular asset classes and securities in which the Fund invests may prove to be incorrect and may not produce the desired results. Past performance is no guarantee of future results.
S&P 500 Index
is an unmanaged composite of 500 large capitalization companies. This index is widely
used by professional investors as a performance benchmark for large- cap
Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index.
NLD Review Code: 3306-NLD-4/23/2019