Market Update: 11-05-18

Patience is a virtue! The Issachar Fund (LIONX) is 100% in CASH as of Friday, November 2, 2018. I believe the market will head higher into the new year and I am diligently looking for an early entry point. I have a Watch list of stocks to buy and some are setting up nicely while others still need time to form proper bases. The Healthcare, Retail Apparel and Retail Auto Parts industries look attractive at this time but a few more days are needed for confirmation.

I am patiently waiting for what Investor Business Daily (IBD) calls a “Follow Through Day” (FTD) which is when a major Index closes up at least 1.25% on higher volume than the previous day. According to IBD, a FTD tends to simply confirm a new uptrend. IBD says that no bull market has ever started without an FTD but not every FTD leads to a bull market. No system is perfect but I believe IBD has one of the best time-tested systems I have seen in my 28-years of managing money. All “systems” should be monitored with good “common sense” to know when the “system” might be broken and should be abandoned. There are no guarantees in life and no one has a crystal ball which is why I remain flexible and do not subscribe to any type of buy and hold philosophy. People and systems may eventually fail you so trust your God-given Wisdom and know He is looking out for your best-interest.

I believe that the Republicans will retain majority leadership in the Senate and House mid-term elections. Trump’s lower taxes, de-regulation, near full-employment and a booming economy is hard to vote against unless one does not care about these facts. We all have a right to “feel” a certain way, but the facts are hard to argue against. On the other hand, the market might be anticipating a different outcome than what I am expecting. The cement stocks industry gained over 12% last week! When I see cement stocks advancing 12% right before an election, I have to ask why. Maybe this “smart money” is betting that the Democrats will win and spend lots of money on rebuilding our infrastructure? However, Trump and a Democrat controlled House could lead to gridlock. Infrastructure is one area both parties agree on. I pray that I am right, and the Republicans maintain control and Trump keeps Making America Great!

The Federal Reserve concludes a two-day meeting on Thursday. According to CME’s Fed Watch Tool, odds favor a 7% chance of a ¼ point rate hike on Thursday and a 72% chance of a ¼ point rate hike in December. I really believe the Fed (Jerome Powell) does not want to throw us into a recession so they will likely proceed cautiously. Trump has already indicated the Fed is “crazy” for raising rates which puts Powell is a tight spot. The Fed is supposed to be independent, but I do not think Powell wants to upset his boss (Trump). I believe Powell will likely raise rates as anticipated, in order to appear independent. Higher rates tend to be bad for stocks in the long run because they often make it more difficult for companies to borrow money and/or service existing debt. Corporate debt is at record levels. Historically, as rates rise, new bonds become more attractive than stocks due to their higher yield and perceived safety. The 10-year treasury bond now yields more than the average S&P 500 dividend yield. Wow!

Bits and pieces. US/China trade relations could be getting better. Trump is scheduled to meet with China’s President later this month at the G20 meeting. I believe China has more to lose than we do so, I expect a deal to be announced shortly and that could be a favorable event for the stock market. Despite the hurricanes, the US added 250,000 jobs (30% more than expected) in October and Unemployment is at 3.7% (49-year low), wages are up (highest in 9-years) and the Trump Agenda appears to be working. Apple announced great earnings and sales, but their guidance was sketchy. Apple stock declined 6.6% on Friday and took a lot of tech stocks lower also. All major indexes including junk bonds are still in steep down trends, but a bottom may have been put in? I am watching for a confirmation of a new uptrend. My advice is to keep your powder dry and never try to catch a falling knife!

Bottom Line: I believe risk has declined and it may be time to take on a few positions shortly. If I do and they are profitable then I plan to add to them in an effort to participate in the up trends and avoid the major declines. Please vote and vote often to Keep America Great!

PS: Do you take the time to monitor your investment portfolio every day to prevent life-changing losses? Find an “edge” and use it!

(Portfolio holdings are subject to change at any time and should not be considered investment advice. There is no guarantee that any investment will achieve its objectives, generate positive returns or avoid losses.)

The chart below shows the YTD total return of LIONX (green) verses S&P 500 (red). I believe that managing risk is the key to long-term success. Notice how less volatile LIONX is for a similar return!

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Dexter Lyons