Horter Investment Management, LLC Weekly Commentary August 12, 2019

August 15, 2019
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Weekly Commentary | August 12, 2019

The Bond Market’s Dotcom Moment Has Arrived

One of the world’s most respected financial columnists—John Authers—has just put out an article arguing that we may be at the bond market’s Dotcom moment. Authers cites the gigantic hoard of negative yielding debt, as well as many charts of soaring 100-year bond prices (check out Austria’s and Mexico’s), to show that the bond melt up may be set to reverse. He argues that at some point soon (it could have already started with the reversal in ten-years yesterday) that investors will revolt against super-low yields, sending prices lower and yields higher. Authers thinks the spark may be unexpectedly higher inflation, which would undermine the whole premise of recent gains. Tariffs are inflationary by definition, so it is not far-fetched to think this could occur. Click here to read more

Three charts suggest stock sell-off could get worse

Stocks are coming off a wild week.The major benchmark indices, though suffering their worst day of the year on Monday, managed to end the week less than 1% lower. However, while the S&P 500 was able to recoup the worst of its losses, Miller Tabak equity strategist Matt Maley says it could get worse before it gets better.

“History tells us that whenever you get a sell-off on a short-term basis that is in reaction to new news, or a new development, the bottom we see on the initial sell-off is rarely the ultimate bottom. We usually see the market bounce a little bit, for a little while, and then roll to lower-low,” said Maley on CNBC’s “Trading Nation” on Friday.
For example, the S&P 500 tumbled 5% over two weeks at the beginning of May and rebounded 3% before tanking to fresh lows through the rest of the month. A similar pattern emerged in the fourth quarter last year, and in 2015 during the oil crash. “What happens is the new news comes out, the market sells off, becomes oversold. We get a little bit of shorter bounce, but then people look around and say, ‘Wait a minute. Nothing’s really changed.’ That negative news is still out there, and the market rolls back over again and makes new lows,” said Maley. Click here to read more.

Taking a comprehensive look at the overall current stock market

Taking a comprehensive look at the overall current stock market, you can see the chart below representing eight major indices and their returns through the week ending August 9, 2019. In a truly diversified portfolio, the portfolio’s total return is determined by the performance of all of the individual positions in combination – not individually. So, understanding the combined overall performance of the indices below, simply average the 8 indices to get a better overall picture of the market. The combined average of all 8 indices is 10.13% year to date.

Data Source: Investors FastTrack, Yahoo Finance, Investopedia

Past performance is not a guarantee of future results. This Update is limited to the dissemination of general information pertaining to its investment advisory services and is
not suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions
expressed in this newsletter will come to pass. Investing in the stock and bond markets involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice. Horter has experienced periods of underperformance in the past and may also in the future. The returns represented
herein are total return inclusive of reinvesting all interest and dividends.
The above equity, bond and cash weightings are targets and may not be the exact current weightings in any particular client account. Specifically, there may be cases where
accounts hold higher cash levels than stated in these target weightings. This is usually to accommodate account level activity. Furthermore, some variable annuity and variable universal life accounts may not be able to purchase the exact weightings that we are indicating above due to specific product restrictions, limitations, riders, etc. Please
refer to your client accounts for more specifics or call your Horter Investment Management, LLC at (513) 984-9933.
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Dow Jones - Week Ending


Global Equities: Global equity markets picked up where they left off the week prior, with a steep Monday decline as investors sought to reduce risk in the wake of growing uncertainty over interest rates and an escalating trade war. The S&P 500 fell by as much as -3.8% intraday on Monday, slipping below its 50-day moving average. US equities clawed back the Monday losses during the following three days before hitting resistance on Friday. Markets sold off after weak inflation data and confusion over US government restrictions on commerce with Chinese tech company Huawei, but ultimately were able to regain most of the losses. The S&P 500 finished the week down -0.40%, the Nasdaq ended down -0.56%, and the Dow Jones Industrial Average lost -0.61%. International stocks also suffered weekly losses, exacerbated by political turmoil in Italy, with Foreign Developed stocks down -1.19% and Emerging Markets down -1.68%.

Fixed Income: The yield on the 10-year US Treasury Note fell as low as 1.61% mid-week, ending Friday at 1.71%. Foreign bonds rallied as well, driven in part by large rate cuts from the central banks of India and New Zealand. Weak economic data pushed German 10-Year Bund yields to an unprecedented - 0.61%. As investors piled into the safety of government bonds, outflows mounted in high yield. Lipper reported over $4 billion flowed out of high yield bond mutual funds and ETFs in the weekly period ended August 7th.

Commodities: Oil prices continued to trend lower, nearly reaching $50 a barrel in mid-week trading, before recovering back above $54. Natural gas prices fluctuated before ultimately finishing the week higher at $2.13/MMBtu. Gold prices continued their recent run, finishing the week near $1,514 per ounce thanks to their status as a safe-haven investment.

Still No Inflation: The Core Personal Consumption Expenditures (PCE) Price Index increased just 1.6% on a year-over-year basis. Inflation data has consistently undershot the Fed’s 2% target, with data ex-food, energy, and trade services down -0.1% in July, the first monthly decline in nearly 4 years. With inflation remaining muted, investors now consider a Fed rate cut in September to be a certainty. Fed Funds Futures imply a 16.5% chance of a half-point cut and a 83.5% chance of a quarter-point rate cut.

German Recession Risk: After years of carrying the Eurozone economy, Germany’s economy has shown troubling signs of slowdown in recent months. Industrial production fell -1.5% in June, for a troubling -5.2% decline year-over-year. Economists now project that next week’s GDP figures will show economic contraction in the second quarter.

2nd Quarter Earnings: Ride-sharing services Uber (UBER) and Lyft (LYFT) both reported earnings, and both companies are burning through cash with no end in sight. Lyft lost $644 million during the quarter while Uber lost a staggering $5.2 billion. Despite the jaw-dropping losses, both companies continue to grow revenues and shares were only moderately lower postearnings. With earnings in the books for nearly 89% of S&P 500 companies, 73% have beat, 18% have missed, and 9% have met earnings estimates. Health Care has been the biggest winner in Q2, with 95% of companies exceeding estimates, while Utility companies fared the worst at a 46% miss rate.

Current Model Allocations

Data Source: Hanlon Investment Management


In utilizing an approach that seeks to limit volatility, it is important to keep perspective of the activity in multiple asset classes. We seek to achieve superior risk-adjusted returns over a full market cycle to a traditional 60% equities / 40% bonds asset allocation. We do this by implementing global mandates of several tactical managers within different risk buckets. For those investors who are unwilling to stomach anything more than minimal downside risk, our goal is to provide a satisfying return over a full market cycle compared to the Barclays Aggregate Bond Index. At Horter Investment Management we realize how confusing the financial markets can be. It is important to keep our clients up to date on what it all means, especially with how it relates to our private wealth managers and their models. We are now in year nine of the most recent bull market, one of the longest bull markets in U.S. history. At this late stage of the market cycle, it is extremely common for hedged managers to underperform, as they are seeking to limit risk. While none of us know when a market correction will come, even though the movement and volatility sure are starting to act like a correction, our managers have been hired based on our belief that they can accomplish a satisfying return over a full market cycle, -- while limiting risk in comparison to a traditional asset allocation approach. At Horter we continue to monitor all of the markets and how our managers are actively managing their portfolios. We remind you there are opportunities to consider with all of our managers. Hopefully this recent market commentary is helpful and thanks for your continued trust and loyalty. 

Data Source: Hanlon Investment Management