Saturday, May 20, 2017

TLH Market Review - 5/20/17

Was that the correction we have all been waiting for?  Earlier this week the markets caught a lot of people off guard when all the major indexes dropped 1.50%, and the Russell took a whopping when at one point it was down around 2.50%.  The indexes rallied back to erase most of the losses for the week.  Time will tell if this turns out to be the start of a pullback, or just a blip on the radar screen.  I'd welcome a good 5-10% downdraft in equities.  It'd be healthy for the market to wipe out some weaker hands, and create a nice base for further gains.


YTD the majors are all still showing gains, led heavily by technology stocks, and some lagging by small caps.

S&P 500 - 6.38%
Dow Jones - 5.27%
Nasdaq - 13.01%
Russell 2000 - 0.75%


The drop was so surprising because the Volatility Index(VIX) was testing decade long lows below 10 when all of the sudden it surged 50%+.  That might sound like a huge number but the VIX ultimately only hit a high of 16.30, and it's not abnormal for the index to trade around that number historically. I don't like to think of the VIX as the best overall indicator for tops either. Personally I think it's a bit better at marking bottoms.



We received economic reports his week per usual, and the standout was Industrial Production which rose 1.0%. That's a good number since more manufacturing works its way throughout the economy very well.  Remember about 3 weeks ago I pointed out the decades long time decline in Industrial Capacity Utilization

The Atlanta Fed's GDP Now is predicting a 4.1% increase for Q2. But the New York Fed is only predicting a 2.3% increase for Q2. Why the difference? It comes down to the way each model is calculated.  Either way both reports have cited IP as a reason to boost forecasts this week. 

Portfolio

It was a quiet week on the news front.  No holdings had earnings this week as earnings season wraps up. The portfolio was however a bit choppy due to the overall market.

Global Payments(GPN), PayPal(PYPL), and Visa(V) all hit a 52-week high to start the week. Global Payments now trades with a $90 handle, and Paypal just edged above the psychologically important $50 level for the first time. Needless to say I'm expecting big things from this group. The portfolio isn't shy about focusing on certain sectors such as financial payments, and tobacco.  It means the portfolio can lag the market at times due to it's concentration, but when these sectors are out-performing like they should it translates to much better gains. 

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