The stock market couldn’t muster two back-to-back “up” days in October… until yesterday. Finally, we saw some relief after Facebook posted good quarterly earnings and the stock market rallied. The good news continued into today with hopes the trade drama with China will be resolved. That being said, the month of October was still negative, and we should all be prepared to see declines on our next statement, unfortunately.
Looking to the end of the year, there are two big dates to watch: Nov. 6th and Nov. 30th. Nov. 6th is obviously midterm election day and Nov. 30th is the date of the G-20 summit in Buenos Aires. What’s important about Nov. 30th is this is when Trump will meet with the Chinese Premier Xi Jinping to discuss trade. We believe those two dates will contribute to how 2018 will end and how 2019 will fare.
Midterms
Next week we’ll all watch as the votes are counted across the country. Those votes will determine if Trump will be hamstrung with a House controlled by Democrats, or if Republicans will keep control.
If Dems take control (69% chance according to the Economist), we expect increased subpoenas and investigations on the current administration, which would limit Repubs from furthering their agenda. This means building a wall or pushing through another tax cut is probably out, but the ongoing trade negotiations will continue.
Trade Talks
The more important issue is the trade war with China. The increased tariffs already imposed on China are having an effect on our businesses in the U.S. Companies are reporting that costs are increasing based on the 10% tariff already imposed, which is not good.
If there are no productive talks on Nov. 30th, Trump has made it clear he intends to increase the 10% tariffs to 25% on Jan 1, 2019. That will be a shock to many businesses large and small, as well as consumers. We believe this could have a dramatic impact on both the economy and the stock market.
Just today Trump tweeted he had a long talk with China’s Xi on the phone and the talks were going ‘Nicely.’ On that news, the market rallied to end with a back-to-back-to-back gain!
Regardless of what happens in November, we all must remember there’s always uncertainty in the economy. The “all clear” bell is never rung, and we invest knowing these situations will ultimately be resolved. With the trade war issue, it will either be resolved Nov 30th, or as we get closer to the presidential elections two years from now, but we believe a deal will get done.
Changes to Portfolios
In our growth stock portfolio, we’ve made a few changes. We sold Ebay EBAY, the online sales platform and Ventas VTR, the healthcare real estate company. This gave us some cash to invest during the last couple of weeks which we did. Investing in the point-of-sales company Square SQ, not once, but twice, as the price plunged with the rest of the growth tech companies and then bounced off the lows.
We now have 5% cash ready to buy on the next down day. We’d like to buy another position in Chinese tech to accompany Baidu BIDU, which have been beaten down this year. Another U.S. company we like is Fortinet FTNT, a cybersecurity firm.
In the moderate and conservative accounts, we sold a few stocks as well: Ventas VTR, Proctor & Gamble PG and Amerigas APU. These were stocks we’ve been looking to sell since earlier this year and this latest volatility gave us a good opportunity to get out.
We’ll use that money to reinvest in a growth tech fund called First Trust Internet Fund FDN and a high-yield fund PIMCO Dynamic Income PDI. We’ve also been taking advantage of some higher paying guarantees from insurance companies like Lincoln Financial Group: their 5-year guarantees are at 4.25% now, which is higher than we’ve seen in 10 years.
Apple AAPL reported their quarterly earnings tonight and judging by the reaction, we may have another down day tomorrow. Fear not though, another down day means stocks are on sale and we have our shopping list ready!
Thanks for reading. Please contact us with any questions.
– Bruce Porter & Tim Porter, CFP®