Pressure is Building and Hurricane Relief Homework

The markets perceived safe havens of gold and the US Treasuries continue to rally. The yield on the 10 year is back to flirting with the 2% level. Gold is trying to break through $1300 an ounce and was outperforming the S&P 500 for 2017. Those are not exactly confidence builders for stock investors. Those are flight to safety trades.

 While lower interest rates have been a hallmark of this bull market, used to justify virtually any valuation, the lens through which investors view them is nuanced. Too low and they start to suggest economic stress.

After rallying in sync for much of 2017, bonds and stocks have become disjointed as economic data misses expectations for the third straight month. The one-month correlation between the S&P 500 and the Bloomberg Barclays Global Aggregate Bond Index is at the lowest since April, with the S&P 500 flat lining since its Aug. 7 high, as 10-year yields dropped 11 basis points.

We grown concerned when the bond market looks anxious and the stock market ignores it but this is not your father’s stock market. This market has shrugged off thermonuclear war fears with North Korea, Presidential special prosecutors, the firing of a sitting FBI Director, a potential debt ceiling debate/default, rising interest rates and the expected shrinking of the Federal Reserve balance sheet.

The S&P 500 rallied off of its lows of 2430 to close the week at 2476. That brings us back to the resistance levels that we have been talking about since mid July. The market has rebounded quite quickly. What is interesting is that investors have been seemingly unanimous in calling for a market setback in the August – October timeframe. If that selloff does not come we may that melt up we have been talking about (ala 1987). Fund managers are under invested and do not wish to disappoint clients come year end. Time is money. A punch through 2480 on the S&P 500 could give the bulls room to run. The rally off of the lows of last week has been anything but active. A low volume run up doesn’t bring with it much conviction but the animal spirits could take over regardless with a swift punch through 2480.

Hurricane Harvey may be helping the stock market by taking a debt ceiling fight off of the table but you wouldn’t know it by looking at the short term bond market. The calendar around when we suspect the government will run out of money has grown quite active and its pricing is indicating that the bond market doesn’t have that much faith in Washington.

Since 1950, August and September are the worst performing months for the S&P 500. However, in the last ten years it is January and June that have taken the mantle of worst performing months. While the caution signs are there the market is still firmly in an uptrend. Support on the S&P 500 is very strong at its 100 Day Moving Average (DMA) and the 2420-2400 area is support for now. Trading desks have been understaffed since Memorial Day and markets have gone nowhere. Oil is stuck between $45-50 a barrel while gold struggles with $1300. The S&P 500 is range bound for now between 2420-2480. The ten year Treasury has been stuck between 2.1% and 2.40% since April. The pressure is building. With staff back in town things may get very interesting very quickly.

Harvey may bring some shortages up and down the east coast. Fill up before you leave the house. Have a great Holiday weekend!

Our old friends at Charity Navigator have done the homework for you and listed a few highly rated organizations for Hurricane Harvey relief. You can see more at their link below.

If you’re looking for a local charity to support in the wake of Hurricane Harvey please consider Houston SPCAHouston Humane SocietyHouston Food BankFood Bank of Corpus Christi, or San Antonio Humane Society. These highly-rated organizations are located in the most-affected areas and are providing support to individuals and animals.

– Charity Navigator

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I  think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com  or check out our LinkedIn page at https://www.linkedin.com/in/terencereilly/ .

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

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