McGibbon Asset Management

03/22/2020

Are you concerned about stock market volatility? There are conservative ways to offset and even profit during times of extreme volatility. Let me know if you would like to learn more.

11/05/2019

Fidelity has matched Schwab.....

We are excited to announce that our trading platform, Fidelity Investments, has announced that starting on November 4th 2019 they will no longer be charging fees on equity trades. Fidelity has announced that for any accounts that are within a million-dollar household, or that are set up for e-delivery and are advisor managed will no longer be subject to fees on equity trades.

05/15/2019

President Trump so far has not been bluffing.

On Friday, the Trump administration followed through on its threat to raise import tariffs on $200 billion worth of Chinese goods from 10% to 25%, escalating long-simmering trade tensions between the U.S. and China to an unprecedented level. However Trump also indicated that talks were fluid, ongoing and by no means have shut down.

While some would claim this a necessary maneuver in the President’s quest to recalibrate the trade dynamic between the world’s two largest economies, it’s clear that the markets aren’t too fond of the move. Monday morning brought more of the stock market declines seen last week after Trump announced the tariffs—with the Dow Jones Industrial Average down more than 550 points, the S&P 500 also dropping more than 2%, and the Nasdaq Composite falling around 3%. Some of this selloff has provided opportunities in otherwise overly high priced equities.

Trump has indicated that he’s in no rush to strike a less-than-favorable trade deal with China, meaning that this could only be the start of a volatility for investors who have mostly thrived during the bull run that’s greeted the start of this year. Given that election season is months away, we would expect that a trade deal would be reached sometime in the next 6-8 months.

In conclusion, We as investors need to recognize that this trade dispute is in reality impacting less than 3% of the total economy. Also, we should recognize that multinationals will adjust with some “final” manufacturing coming from countries that are not subject to tariffs. This subtle manufacturing shift has probably been in the works for months and is not new to large multinationals.

12/13/2018

The end of the year economy,

As 2018 wraps up, the US economy is fighting a few temporary head winds. Some headwinds are seasonal, psychological and economically driven. Let me explain, to begin with, seasonally we are in the end of the tax harvest season. Both gains and losses are being harvested and distributed to shareholders. This typically happens in late fall and early winter. Normally equity fund managers will buy back into the market before the end of the year. Frequently known as the “Santa Claus rally”. Secondly, the market is fighting the psychological mentality that we are in fierce trade war with China. In reality, the tariff dispute is probably very small in relation to overall GDP. However dramatic news headlines on specific sectors in the economy have a dramatic impact on investor psychology. This can spook and moderate investor sentiment. Lastly, the economic driven piece is driven by the threat of higher interest rates. The Federal Reserve designs its policy around two big themes; One, moderate inflation and secondarily, maximize employment in the US Economy. As of today, I see inflation as being muted. Look at the drop in energy prices (a key component) of inflation. Energy prices have dropped dramatically in the last 2-3 months. Also and argument could be made that Europe is in a recession and raising rates too quickly and too deeply in the US could have severe ramifications in the global economy. In general we believe the Fed will improve transparency guidance going forward.
In conclusion all the above mentioned items are of a temporary nature. The end of the year tax selling season will end. We will come to some agreement with China on basic trade policy. Lastly the Fed can and will provide more transparency on interest rate direction. We look forward to improvement in the months to come on all these headwinds.

10/12/2018

Behind the market pullback

Slowing earnings growth and rising rates triggered a sell-off.

Since hitting new highs in September, the S&P 500 has fallen about 4%. Most technology stocks have pulled back 20%. Some people are worried that it's the beginning of the end for the bull market. But just because a bull market changes and stops going up, that doesn't mean a bear market is now coming into full force. Keep in mind that a market can sit and go nowhere for a while before moving up again. This year, earnings have been growing strongly, but liquidity has been tightening a bit more than we have become accustom too. The Fed has been raising rates and the dollar has been getting stronger. It is likely that the market seemed to be underestimating the path of rate hikes, and the move up in rates seems to suggest that was the case. At the same time, we have seen the beginning of 3rd quarter earnings season. Some companies have missed their earnings estimates or guided expectations down, blaming tariffs, inflation and the stronger dollar. That creates the sense that earnings growth perhaps has peaked. So for the market math, the numerator (earnings) is doing well, but the denominator (interest rates) is not. The result: Market valuation in the short term is going sideways to down. So my point is that we are stuck in a trading range. That doesn’t mean we are in a bear market! Now earnings would have to fall off a cliff and liquidity would have to be tight—and we don’t have those conditions. So, I think it makes sense to lower expectations until there is clarity about the end of the rate hike cycle, election cycle and the trade war. Keep in mind that any clear revelation regarding the previous three mentioned items could send the market higher. But as the market goes sideways and earnings grow, valuations are coming down. Maybe we go into next year at 15X earnings, and this could be a good still be a good backdrop for the stock market.


McGibbon Asset Management
303-757-8623

E-mail sent through the Internet is not secure or confidential. Naples Asset Management Company® LLC (NAMCOA) reserves the right to monitor all e-mail. Any information provided in this e-mail has been prepared from sources deemed to be reliable, but is not guaranteed by NAMCOA and is not a complete summary or statement of all available data necessary for making an investment decision. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Any information provided is for informational purposes only and does not constitute a recommendation. This e-mail is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you receive this message in error, please contact the sender immediately and delete the material from your computer. Securities may be offered through MSC-BD, LLC, Member of FINRA/SIPC.

04/24/2018

The Fed and the Yield Curve...

The bond market is getting very exciting because the yield on the 10-year Treasury has finally crossed 3%. While 3% is just a number, it is an important marker for the rise in long-term rates, which weigh on the economy. The 10-year yielded 2.41% at the start of the year.

The march higher in yields comes at an interesting time, since the recent economic news hasn’t been stellar. But inflation does appear to be firming, and the rise in oil prices suggests the global economy is slowly heating up. Investors who are focused on 3% are missing the more important development in the market. The real action has been driven by expectations the Federal Reserve will keep raising interest rates, which has pushed the 2-year yield to 2.47% from 1.89% this year. As a result, the yield curve, or the difference between the yields on the 10-year and 2-year notes, has narrowed to just 0.5 percentage point.

That is a good spot to be. Healthy economic growth will keep the Fed on track to raise rates further, while modest inflation will keep long-term yields from spiking. This flattening of the yield curve makes people worried because the market gets closer to the dreaded inverted yield curve, meaning the 2-year yield rises above the 10-year. An inverted yield curve has often predicted a recession. Thus, the big question is “Are we heading towards a recession?” The short answer is, we aren’t there yet. The current curve is still positive, which suggests bond investors believe the economy will be able to absorb forecasted Fed rate increases. An inverted curve, on the other hand suggests they believe the Fed has raised rates to the point where the economy risks faltering, and the central bank will need to cut rates in an attempt to head off a recession.

If you believe this situation to be an “on-off switch”—off switch indicates the yield curve inverts. There is no reason to worry until switch gets thrown, and there is no big rush to get out when that happens. Stocks have tended to perform well when the yield curve is relatively flat. Since 1976 when the difference between the 10-year and 2-year yields has been between 0 and 0.5 percentage point, the S&P 500 has gained 13%, on average, over the following year. When the curve has inverted, the S&P has gained just 5%, on average, and experienced some of its most harrowing declines. That counts as a cautionary message, but the Treasury market isn’t declaring last call yet.

04/11/2018

INVESTING DURING TRADE WAR MANIA...

The perils of betting on stock-market themes were on show last week for anyone trading on a trade war. Two obvious bets went wrong, even as the entire market moved down on trade war worries.
Monday brought a big rebound and is a reminder that President Donald Trump's trade policies may not end up so very different from those of previous U.S. presidents. But an unpredictable president may have prompted investors to start assuming the worst. Trump's twitter postings have become both unpredictable and sometimes fundamentally concerning. These facts alone make trading decisions difficult.

The first obvious trade is a bet that the winners of global trade will suffer from trade-war threats. The clearest winners from global trade have mainly been Germany, Japan, South Korea and Singapore. Yet all the targeted efforts by the President have been aimed at China. Now, despite the recent tariff announcements, their stock markets are also all ahead of the S&P since Mr. Trump was elected in 2016, including dividends.

Trade, important as it is, isn't the only thing investors care about. The U.S. market was hit last week by the plunging price of Facebook (FB) Inc.'s shares, and the dollar weakened, too. Even if trade were the only thing that mattered, some big U.S. companies were hurt badly by trade fears on Thursday, notably companies using steel and those providing intellectual property.

The second simple bet against free trade was to buy U.S. steel companies, as they were expected to profit from Mr. Trump's steel tariffs. Yet U.S. Steel(X) Corp. plummeted 11% on Thursday, leaving the stock price down for the year, because Mr. Trump decided to exempt European imports from the steel tariffs he had announced earlier. Close ally Japan wasn't exempted, and its steel stocks slightly underperformed the wider market, but not by much.

As mentioned earlier, the erratic behavior might be part of Mr. Trump's deliberately unpredictable negotiating style, such as his previous threats to pull out of the North American Free Trade Agreement and not to defend NATO allies. It creates a dilemma both for partners and investors: Should they take Mr. Trump at his word? The appointment of Larry Kudlow has mainly been a bright spot for investors. Kudlow is a well-known and respected economic personality across the globe. Looking back, after Mr. Trump’s election, the stock market rose, fell, then rose again, along with the prospects for corporate-tax cuts. This was the sort of uncertainty investors like: Something good might happen. It wasn't clear whether Mr. Trump's policies would make it through Congress, but if they did, it would surely help stocks.

The uncertainty today is whether something bad will happen. If Mr. Trump is serious about trashing the global trading system, there are few places for investors to hide. Stocks will suffer, the economy will slow, and inflation will pick up. There is a decent case to be made that things aren't really that terrible in international trade. Mr. Trump's approach is similar to that of previous presidents, only noisier and more directed towards China. The U.S., like just about every country, has always had a transactional approach to trade deals; Mr. Trump is just far more open about it.

REMINDER Tax Filing Deadline is April 17th.....Remember to make your IRA contributions! REMINDER

McGibbon Asset Management
303-757-8623

E-mail sent through the Internet is not secure or confidential. Naples Asset Management Company® LLC (NAMCOA) reserves the right to monitor all e-mail. Any information provided in this e-mail has been prepared from sources deemed to be reliable, but is not guaranteed by NAMCOA and is not a complete summary or statement of all available data necessary for making an investment decision. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Any information provided is for informational purposes only and does not constitute a recommendation. This e-mail is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you receive this message in error, please contact the sender immediately and delete the material from your computer. Securities may be offered through MSC-BD, LLC, Member of FINRA/SIPC.

03/07/2018

Tariffs Increase Uncertainty and Markets don’t understand it

On March 1, President Donald Trump unexpectedly announced that he would dramatically increase tariffs on steel and aluminum imports. The next day, he defended his controversial decision to tax steel imports at 25 percent and aluminum ones at 10 percent, tweeting that “trade wars are good, and easy to win.” While talk of rising tariffs stoked recent market uncertainty, we believe they should not derail the current robust economic outlook. However, in times of elevated volatility, diversification is critical – as is staying active.
Since Trump’s announcement, many economists have publicly disagreed that raising tariffs so sharply will improve the economy. In particular, experts have pointed to the failure of the Smoot-Hawley Tariff Act, passed in June 1930, to protect U.S. industries with tariff increases. However this economic environment is far more complex. In 1930, the economy as a whole was roughly the size of Illinois today.
According to Larry Kudlow, President Trump genuinely believes that his steel and aluminum tariffs will save thousands of blue-collar jobs. And we believe that he truly cares about these workers in Pennsylvania, Ohio and other rust belt states. The American people do as well, and we don't want factories to shut down. But even if tariffs save every one of the 140,000 or so steel jobs in America, it puts at risk 5 million manufacturing and related jobs in industries that use steel. These producers now have to compete in hyper-competitive international markets using steel that is 20 percent above the world price and aluminum that is 7 to 10 percent above the price paid by our foreign rivals. In other words, steel and aluminum may win in the short term, but steel and aluminum users and consumers will lose. In fact, tariff hikes could really become tax hikes.
Now, should the tariffs be accepted with little in the way of retaliations then we move forward. It is widely suspected that Trump is using tariffs as part of a series of bigger bargaining chips to complete a new NAFTA agreement. So it is widely believed that a bigger picture is at stake. Either way, historically tariffs have ended with mixed and sometimes mediocre results.
This market could create volatility opportunities as values present themselves. Also patience is required for long-term investors because fundamentals will be questioned. Current economic conditions remain positive as tax-cuts are still being processed. In general, the equity market story is still intact as inflation is still months away.

www.McGibbon-Asset.com
Investment Advisory services are provided through Naples Asset Management Company ® LLC, a SEC registered investment advisor. CRD 133978

8400 E Prentice Ave Suite 1360
Greenwood Village, CO 80111
303-757-8623
McGibbon Asset Management

Make an informed investment with McGibbon Asset Management. We are your personal investment advisor based in Greenwood Village, CO.