Talking Points – November 2018

Nov 28, 2018 – What Might the 3rd Worst start to a 4th Quarter mean?

The S&P 500 has had its 3rd worst start to a 4th quarter dating back to 1950. What might that mean for the rest of this year?

Our chart today shows that in 80% of past declines, over the same time period, stocks finished the remainder of the year with gains that averaged 2.7%.

Source: Strategas

Stocks have by many measures become oversold and from a contrarian perspective we like the increased negative headlines we have seen recently. However, there is notable over head technical supply/resistance now. Investors may enjoy some seasonal relief in the weeks ahead, but it is much too early to declare all clear.

Nov 21, 2018 – Investors Still Too Positive For Clear Bottom                   

One key to stock market analysis is weighing the evidence you have and using history to determine what current data most likely means for forward price action. Today we use this theory and our belief in sentiment to look at two reasons stocks have most likely not yet put in a firm bottom.

First, we see that the Put/Call ratio has mostly stayed low, including on yesterdays sharp selloff. We would prefer to see more Put buyers than Calls, which would indicate a higher level of fear.

Source: Strategas

Next, we look at the Investors Intelligence Bull/Bear ratio. Despite recent market volatility, there are still twice as many bulls as bears.

Source: Strategas

No indicator is always accurate and it is possible stocks have bottomed. However, for us to upgrade our more neutral view we would want to either see sentiment get more negative, or the previous uptrend to be reestablished.

Nov 7, 2018 – What Do Stocks Do After Midterm Elections?

Now that the midterm elections are finally behind us, investors can turn their attention to a long list of other factors. After the past 17 midterm elections, the S&P 500 is up an average of more than 15%, with no negative 12 month periods. The average correction during those periods was -12%, which is about in line with a typical calendar year correction.

Source: Strategas

The recent damage done to technical price trends and the possibility that we are entering a late cycle period are on our minds. However, a strong seasonal period could outweigh those concerns.

Quote Philosophy: “It takes character to sit with all that cash and to do nothing. I didn’t get to where I am by going after mediocre opportunities.”  Charlie Munger

Few investors are as insightful and successful as Charlie Munger and his long time business partner, Warren Buffett. One of the many key aspects to that success is their patience in holding cash.

At Lakeview, we have long viewed cash as an asset. During challenging times it becomes particularly important to have cash available so that you can be the one buying when others are fearful and assets are on sale. However, often overlooked is patience with holding cash when markets are strong. Cash during those periods will be a short-term drag on performance, but as Mr.Munger says, mediocre opportunities should not be bought simply to be fully invested.

We believe in owning high quality assets with strong fundamentals that are trading in uptrends. If not enough securities meet that criteria we find it beneficial to hold some cash for a better opportunity.

Source: Greg Towner, CFA, CMT

Disclosures