On this week’s show, Karl discusses that even though the stock market has been more volatile as of late, there really isn’t a trend. And, that’s not the worst thing in the world.
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Well, what a week, right? We have more volatility than this past week on a lot of news. There’s some days we don’t get a ton of news and other days wed do. But, look, at the end of the day, we are not that much off of our recent highs which came on intraday. They came on May 1st. So, May … the kind of sell and May go away seems to be working so far because the market kind of peaked on a closing basis April 30th, and here we are. But we’re not far off the highs. We’re sitting somewhere around 4% off of the highs right now based on the S&P 500. So I had somebody earlier in the week saying, “When’s this market going to turn around,” and, “Things have been so bad.” And I said, “We’re only 4% off of the … close to the all time highs.” So, while it may feel that way based on the news and the drama, it’s … again, this isn’t even a correction, if you will.
So, again, remember the news nowadays is meant to grab eyeballs, which it always has been, but moreso than ever with breaking news, and loud types of sound effects, and graphics to grab your attention, which is going to get you not focused on the right things. It’s meant to increase your anxiety, to get you to do something. If you do something, meaning trading, you’re probably doing that because of the emotions and some of these places benefit from that. So, bottom line is, we have some real things going on, and we have some noise, and it has led to … I’m going to say it’s leading to more of a trendless market. And how do we know that? Well, what we do is we look at the recent trends and what we know is that, for most of 2019, we’ve had an up trending market. For the last few weeks, we’ve had a sideways trending market. And it makes sense. There’s a few things going on.
Number one, we have the tariff and trade war that’s heated up again. We were seeing progress, China may have changed their mind, Trump retaliated with higher tariffs, and that has led to some uncertainty. And these tariffs are a big deal. I mean, we see companies now saying, “Look, there’s a big difference between 10% tariffs, 25% tariffs. How long does it last?” We know President Trump took the steel and aluminum tariffs off of Canada, off of Mexico. These are … I think if some of this is, it’s like a chess match. We know that if they make this move, the US is going to make this move. And if we make that move, China’s going to make the next move. And we’re seeing some of that play out right now. They both want a deal, right? But they are negotiating tough right now. And in the meantime, everyone’s in flux with what they do with their manufacturing, et cetera.
Now, in addition to that, we do have some economic numbers that haven’t been the best in the world. Is it a trend? Is it going to continue? We don’t know. But what’s happened is, there’s no question that things have just moderated a bit lately. Not recessionary by any means, but something that’s more of a caution flag. And so, remember what happened a few months ago was when the Federal Reserve said, “We’re not going to raise rates anymore,” the market took off like a rocket because, great, economy’s growing and the fed’s out of the way. Well, the fed’s out of the way, but if the economy slows down, again, people are on pause and that’s really what we see is on pause. It’s more of a buyer’s strike right now than it’s intense selling.
So, let’s go through what happened this week. We did see the market down about 84 points on Monday, and we’d come back Tuesday. Nice big update, up 200 points on the Dow Jones. Pretty quiet news day for the most part. No news is good news in a trade war, right? And then we had, Wednesday, an interesting announcement by James Bullard. He’s the Federal Reserve Bank of St. Louis President, comes out and says US policymakers may have, quote unquote, “slightly overdone it” by raising interest rates in December, though it’s premature to talk about a rate cut. So, remember, a lot of the people out there felt like December was one too many. It was okay to raise rates, but once things started to slow down a bit, they should’ve just stopped, and they went one too many. So, now he’s saying, “But we may not … we’re not … it’s premature to talk about a rate cut.” A rate cut would imply, obviously, that things are slowing down too fast, and, “Uh-oh, we need to cut rates to speed the economy up.”
So, the Dow bounced around on Wednesday a little bit, eventually finished in the red. Thursday, we had the 10 year bond hit its lowest level since November of 2017. what does that mean? People are buying bonds because they fear an economic slow down. Interest rates go down. In addition, you saw oil drop 6%, its worse drop of the year. Stock market was down about 450 points at its low point, finished down about 280. But for the week, again, not off that much, just kind of bouncing around here, but there are pockets of areas that are really weak pockets of strength, but the general theme right now, economically, has been good but not great, right? We’ve been saying that. But also we’re seeing the market’s trendless, in my opinion, where it’s moving sideways. Some good days, some bad days, we have days where it’s down in the morning, up in the afternoon, and vice versa. And it does make sense that people are waiting, right? We don’t know the rules of the game right now, so we’re going to wait and see. And then once we get a better clarity on the tariffs and how long they’re going to last and what the implications are, then we can start projecting who wins and who loses from a corporate profit standpoint.
Because, remember, as we’ve said, profits are going to drive the stocks over the long-term. And if the profit slow down, you have issues. And, remember, we’re seeing some of these areas … technology is in the crosshairs right now. We’ve seen a big drop in … semiconductors are down about 16% from their high. You have even something like … and Apple was down about 16% from its high. So, this rally that we had in 2019, a lot of these companies and stocks have given back half of those gains. And it wouldn’t surprise us to see the market kind of do the same thing, where it just gives back half of these gains called a retracement in the technical world. And so, that could mean the Nasdaq falls another 5% or so. Maybe the S & P does the same thing. But you’re definitely seeing some winners and losers.
Now, for the week, what we saw was, the biggest gain was Bitcoin again. That’s been kind of a safe haven, this year up over 100% year to date. We’ve also saw big … some of the merging markets were up big this week, specific countries, overall merging markets, maybe not so much, but specific countries. And we also saw some of the agricultural commodities and commodities in general have a really good week. Silver was up, gold was up slightly this week, and of course, as we said, some bonds were up.
Now, on the downside, some of the biggest hit, as you would imagine, oil and gas, given the fact that oil fell over 6% this week, so oil and gas exploration and production down 8%, the equipment services sector down 11%. Just this week, semiconductors down 5%, metals and mining 5%, transports down three and a half. Some of these cyclical type of things, again, falling right now, and it makes sense why they’re falling, but how long is this going to last? And that’s why you see some of these companies falling because number one, they … investors believe there’s going to be real economic impact regardless of what happens going forward. But it’s also sell now and then if things straighten out, great, we’ll go back to it.
But it’s not just about that, as I mentioned. The economy starting to have some slowdown in some little areas, some little cracks … they talk about green shoots and the economy’s not doing well and you start to see some green shoots and positive things. This is the opposite. This is … the yard’s about to go dormant. And so, we’ve got brown shoots popping up. That’s kind of what it feels like. Now, does your yard … is your yard go dead and you have to strip it and re-seed it? No, we’re not saying that. We’re just saying that maybe we’re going from summer to fall here in terms of what the cycle looks like. And so, some of these things are reacting as such. Now, we’re keeping our theme of discussing this bifurcated market, right? There’s cheap stuff and there’s expensive stuff, and there’s a tremendous amount of opportunity, but you’re going to have to continue to know what you own and probably owning more quality, owning things that are out of favor that have already taken a hit in not owning very expensive, overpriced areas.
That’s the biggest thing to take away from this. Now, here’s the key, again, I’m going to go back to profits and earnings for a minute because there was a report out this week, I’m trying to who this was from. It was came out of a fact set talking about that earnings estimate since March 31st, not as of, but since March 31st … now, we’re almost at May 31st. Since March 31st, the last two months, earnings estimates are going up, and that’s key because, again, if earnings continue to go up, stocks will continue to go up as well over the cycle. So, all of that is in the short-term. All of that is the noise going on with tariffs and the economy. And again, we don’t … economists can’t project us out. We can just tell you what’s happening and how investors are reacting to it and the sentiment that goes with that.
And right now, it does seem like a little bit of a stalemate between the buyers and the sellers. And so, we’re not seeing anything dramatic there, but there’s underpinnings happening and there’s a little bit of tug of war going on. And with the economy we see some, again, some warning signs that are early on, but those warning signs sometimes don’t last, right? They’re just short-term indicators. And so, all of this means cherry-pick ideas from a value standpoint. Again, don’t be over-allocated in a certain area. Use this time to readjust. And I’ve said this before, if there was times in December you wished you were selling something, you have the opportunity right now to do so if you’re overweight something. So, again, be tactical here in that, but don’t go overboard. This is not a time to get dramatically bearish or dramatically bullish, but be very tactical.
And that word, tactical, is interesting because that could just mean on the fringe you do some little adjustments to your portfolio, right? And you have to take in consideration taxes and so forth, but tactical can also mean just … it means being opportunistic, really, at the end of the day. But all of this always goes back to your situation, and your comfort level, and your plan. And if you don’t have a plan of attack here, then it’s just, again, going back to listening to the bald people on TV throwing stuffed animals at the screen, and that’s not a comprehensive plan going forward. I mean, when you have a plan together, you project out cash flows, you see what your taxes are going to be in future years, you make adjustments, you look at your history of what you tend to do in terms of your experience with the stock market or the bond market or anything else, and then you say, “What do I need to achieve? What level of volatility am I comfortable with? And also what kind of volatility do I have to put up with?” And you make a portfolio for that. Within those silos, yes there’s adjustments to be made, but you have to start with the asset allocation. Otherwise, you’re just going to be spinning your wheels.
People want to buy certain stocks just because they think it’s a great idea. Where does it fit in? Should you be trading? If you work for a company that’s publicly traded, how much of that stock should you even have? And making a plan of attack in the next several years, taking into consideration you’re going to keep getting more of those shares. All of that boils down to the plan. If you need help with that process, we can do that. We have plenty of people here to help you through that process. And again, once we have that, then you move to the investments. You can’t reverse engineer it.
Had somebody recently sell a very large ranch and is wondering what to do with the money, and it’s a lot of money, but before you do anything with that, what I told them is, “You got to do a plan first. We got to come up with a game plan, and a strategy, and also figure out what are you trying to do with this money? You going to give all of it away before you’re dead? You going to leave it to a child? Or are you going to spend a lot of it? What kind of lifestyle do you lead?” Once you figure out all those things, then you execute it. And so, yes, we spend a lot of time on this podcast talking about what’s going on, current events that affect the markets, but we also talk about financial planning. And in the weeks and months ahead, we’re going to bring a lot more people on here to help you through that process. Guests in all different areas, where it’s tax planning, alternative investments … that’s an area that probably you don’t get a lot of information from because sometimes, in the past, a lot of that stuff has been held out for the ultra high net worth, very wealthy people. And now, everybody has access to a lot of unique types of investments.
And so, we like to bring some of that to you and talk about where those might fit, whether they’re real estate, or whether it’s private equity, meaning things that aren’t publicly traded, all kinds of investments. It could be private lending, right? Using your money to lend to other people or groups and getting paid an income stream. That’s much better than sitting around on a treasury bond. So, all those things we want to bring to you and that’s what we try to do. But we also want your input. We want to know what you want to hear more of, what you want to hear less of. Do you like the format?
So, I could do a formal survey, but I’d rather you just email me, tell you what you like about to show. A lot of you were great at sending me kind of your what you think about the markets right now or what your situation is and that’s been helpful. We’ve had some dialogue through emails and also on the podcast, but I’d like to know more about what you like about the podcast. Many of you, and we’ve said this numerous times, it still amazes me, have listened more than 10 years to this podcast, and you listen all the time. You share it. That’s great. I still want to know what you like about it, what you don’t like about it because we want to continue to improve it.
So, have a great weekend everybody, and have a great Memorial Day. Take care, everybody.
This show is for entertainment only and information provided by the host, guests, and this station should not be deemed as advice. Your investment decisions should be based on your own specific needs. You should do your own research. You make those decisions. As president and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment or get yourself a trusted advisor.