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Winter is Coming…



With almost 200 companies in the S&P 500 reporting earnings, and affirmation from Beijing that a partial trade deal could be completed in the coming weeks, the narrative continues to push the market to new highs in October. According to Goldman Sachs “the outflow from US equity funds this year has been the biggest since 2008, relative to the flood of money into cash and bonds”. Painting a clear picture: investors are ignoring fundamental and technical data, and cashing out early, due to recessionary fears. At Samra Wealth Management, our 2019 consensus remains unchanged, with a bullish stance in the short-term, with portfolio adjustments expected to take affect sometime in Q2 2020. This month’s issue of The Samra Report, focuses on political risk in 2020 and beyond, the weather and your portfolio, and slowing revenue growth.


With the technology sector leading the S&P 500 with a year-to-date return of 33.71%, tech continues to be our heaviest weighted sector. In an age of innovation, there are few hurdles between technology and a continued trajectory, with the exception of political and legislative risk. As Elizabeth Warren leads the Democratic polls, as well as the charge against technology giants with her recently published piece “Here’s How We Can Break Up Big Tech Giants”. At Samra Wealth Management, we believe investors should consider the near-term impact, and the longer-term outlook. Should Warren continue to lead the polls, we believe mid 2020 will see increased volatility, resulting in investors moving from equities to cash, based on the threat of breaking up domestic corporations. A position we believe to be un-American, as the United States has long been a mecca for innovation, where companies can thrive with access to financial and intellectual capital, in a business climate not found outside of the United States. Should Warren win the White House, the near-term market impact would be detrimental. However, investors should differentiate between campaign promises and the ability to create legislative change of such scale, rendering the longer-term outlook unaffected.

The September 2017 issue of The Samra Report, entitled “The Weather and your Portfolio” highlighted how strong winds from Southern California to Texas cause wind turbines to create more electricity, scaling back the demand for natural gas, pushing down LNG prices. The devastating fires in much of California are likely to cause a déjà vu scenario in the 2019-2020 winter season. Furthermore, “the National Oceanic and Atmospheric Administration (NOAA) predicts that much of the "Northern Plains," including Minnesota, Wisconsin and the Dakotas, will see above-average precipitation for the winter of 2019-2020.” The Farmer’s Almanac predicts an “extended forecast of a freezing, frigid and frosty winter for two thirds of the United States.” At Samra Wealth Management, we recommend reducing allocations towards energy, and being selective with tourism, while increasing allocations towards retail as demand for winter clothing increases.


As earnings continue to come in as mainly positive, a closer look shows a similar trend across the market: Revenue growth is slowing. The Federal Reserve Bank of St. Louis shows consumer sentiment reaching a low in August 2019, trending up in September, against increasing CPI. Investors should understand there is little correlation between the financial markets and the economy. However, as technology helps spawn innovation, it also places an additional strain on the nation’s financial health. As corporations invest more in technology over labor, there will come a time where wage flow into the economy slows. Currently, consumption spending makes up 68% of the United States GDP equation, insinuating a reduction in wages translates to a reduction in economic output. Although economic data does little to support our view, we remind investors that economic data did little to predict the last financial crisis.

References

Bloomberg.com. (2019). Bloomberg - Are you a robot?. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 30 Oct. 2019].

Eresearch.fidelity.com. (2019). Sectors & Industries Overview - U.S. Sectors- Fidelity. [online] Available at: https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml#chart-overlay [Accessed 30 Oct. 2019].


Farmers’ Almanac. (2019). Farmers' Almanac Weather | Forecasts, Weather History, Folklore. [online] Available at: https://www.farmersalmanac.com/weather [Accessed 30 Oct. 2019].

Fred.stlouisfed.org. (2019). Consumer Price Index for All Urban Consumers: All Items in U.S. City Average. [online] Available at: https://fred.stlouisfed.org/series/CPIAUCSL [Accessed 30 Oct. 2019].


Fred.stlouisfed.org. (2019). Consumer Price Index for All Urban Consumers: All Items in U.S. City Average. [online] Available at: https://fred.stlouisfed.org/series/CPIAUCSL [Accessed 30 Oct. 2019].

Fred.stlouisfed.org. (2019). University of Michigan: Consumer Sentiment. [online] Available at: https://fred.stlouisfed.org/series/UMCSENT [Accessed 30 Oct. 2019].

Samra, I. (2019). The Samra Report: Not on my Watch. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/no-on-my-watch [Accessed 30 Oct. 2019].


Samra, I. (2019). The Samra Report: The Weather and your Portfolio. [online] Available at: http://www.samrawealthmanagement.com/market-commentary/2017/10/2/the-weather-your-portfolio [Accessed 30 Oct. 2019].

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

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