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 The Stock Market looks like it's ready to take a breather

June 19, 2018


When we last wrote to you we made the following observation:

"As this letter is being written, on Saturday, April 21, 2018, most major stock indexes are hovering around "unchanged" for the year. A few are up nominally. More are down just a bit. The upside action has been in other markets so far this year."

As of that writing stocks had gone nowhere in 2018. Gold and Commodities looked like they were ready for significant break outs to the upside.

What a difference two months can make. Gold is now down for the year. The DBC commodity ETF is still up, but not as much as it was in April. Several stock indexes that were flat or down in April are now up.

Here is an updated version of the table we showed you in April. At that time the S&P 500, Dow Jones Industrial Average, German DAX and Canada's Toronto Stock Exchange Index (TSX) were all down for the year. Now they are all up. The Canadian market has made a remarkable recovery.

(All performance numbers calculated by net change in price from December 29, 2017 as per

U.S. stocks are doing well. This table shows only the S&P 500 and the Dow Jones Industrial Average. Both are now up for the year. The NASDAQ 100 and the Russell 2000 are up even more.

Back in April, stocks were supposedly underperforming because of fears of rising interest rates and rising inflation. The 10 year U.S. Treasury yield had moved up over 22% in 2018 alone. It was spooking the equity market.

But it has flattened out since then. Oil prices were up 7.91% for the year in April.  They have flattened out too. No one seems to be afraid of 3% Treasuries and $65 oil any more. Equity markets have gotten used to both.

Even so, the charts are telling me that U.S. stocks may be ready for a breather. A 3% to 5% correction could easily be in the cards. If we do get a correction it could be simply from summer doldrums; or it could be something more. President Trump's trade policies are clearly making markets nervous, and not just in the USA. Whether or not you believe he is taking the right path for the long run, he certainly has leaders shaken up all over the world. U.S. trade relationships are clearly being tested at every turn.

While long term interest rates have flattened and oil has stopped rising in price, those trends could reverse too. The U.S. Fed is promising two more rate increases in 2018. Their actions impact short term rates. The health of the general economy will determine whether or not long-term rates continue to rise, and how quickly.

The European Central Bank is finally starting to dial back their quantitative easing policies too. Our Fed has been way ahead of them. A significant change in policy in Europe could have impact on markets everywhere. We will have to wait and see how things play out during the remainder of the year.

We are headed into the heat of summer, which has often been a very soft season for stock prices. Summer is arriving with "trade wars" in the headlines, central banks pulling back from their support of bond markets, and uncertainty in energy prices. That is a mix that could cause weaker stock prices, at least for the short term.

Everything else seems to be working. The tax cuts in the U.S. were controversial, but they are seemingly fueling economic growth. The U.S. GDP growth rate is actually approaching 4%. Corporate earnings are rising very nicely. Technological innovation is accelerating in ways we can't even measure and is adding to productivity.  Unemployment is at the lowest level in years. Wages are finally starting to rise. The residential real estate market is on fire. Interest rates are rising, but they are still at relatively low levels and rising slowly-at least so far.

The bottom line is that the economy is doing incredibly well. Despite that, anxiety is rising. That is showing up in the charts.

Let's see what the continuing threats of trade wars, rising rates, and rising energy prices do to markets as we work our way through the summer.

All will be revealed as we go. Two months ago, commodities and gold looked like they were ready to break out and be the leaders to the upside. Stocks were stuck in the mud. Since then, both trends have reversed.  

In the meantime, we have attempted to position Mendocino, Prosper and Global Select to do well regardless. As of June 15, 2018, both Mendocino and Prosper are outperforming both the S&P 500 and their respective benchmarks. (performance calculations by Orion Advisors).

Global Select is up on the year, but not as much as Mendocino and Prosper. Global Select, as the name implies, is very diversified around the world. That diversification has not worked in its favor so far this year. Interestingly stock markets in China, Russia, and Korea are down significantly year to date. These countries have been in the headlines a lot. We consider the swoon in Chinese stock prices to be a buying opportunity.

Global diversification in portfolios can be important. It is a smaller and smaller world, after all. Global Select will have its day.

All the best,

Paul Krsek
5T Wealth,LLC
(707) 603-2672 Office
(707) 486-7333 Cell  

Disclosure and Disclaimer - Updated last on November 15, 2017 by Paul Krsek:
ELLUMINATION is the proprietary newsletter written for clients, friends, and affiliates of 5T WEALTH, LLC . 

Paul Krsek is the sole author of ELLUMINATION. While the views and representations found in the newsletter generally reflect the attitudes and opinions of the 5T WEALTH, LLC members and staff, Krsek writes without editing and therefore is solely responsible for the content and opinions contained in ELLUMINATION. 

ELLUMINATION does not represent the opinions of Fidelity, Fidelity Institutional Brokerage Group, NFS or anyone employed by Fidelity in any capacity. Neither Fidelity, Fidelity Institutional Brokerage Group, nor NFS, nor anyone employed by Fidelity in any capacity has participated in the creation of ELLUMINATION and they are not responsible for the contents or distribution of ELLUMINATION. 

ELLUMINATION is written to provide general information to clients, friends, and affiliates. The contents of ELLUMINATION are not to be taken as individual investment advice. No investment decisions should be made based on the opinions or information offered in ELLUMINATION. 

5T WEALTH, LLC does not represent that the information in ELLUMINATION is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change or modification without notice. 

The investment strategies or management services mentioned in ELLUMINATION may or may not be available in some states, and they may not be suitable for all types of investors. For example, 5T Wealth Partners, LP minimum investment is $1,000,000. 

5T WEALTH,LLC manages accounts with various histories and investment objectives. Various accounts may be managed differently from time to time. 

Krsek makes frequent reference to strategies called Mendocino, Dividend Diamonds, Global Select and 5T Wealth Partners, LP.  Each of these investment strategies have different suitability standards, investment objectives, potential volatility, and minimum investments. It is important to understand each strategy in detail before investing. 

From time to time 5T WEALTH, LLC receives requests from clients to purchase securities that are not included in our investment strategies. Effective May 24, 2006, 5T WEALTH, LLC has encouraged clients to hold such securities in a separate account for the client. Because 5T WEALTH, LLC is a "fee only" registered investment advisor" it charges its normal management fee for monitoring such securities in the separate accounts in which they are held. 

The investment objectives of various strategies may be substantially different from one another. Therefore topics or investments mentioned in ELLUMINATION may or may not apply to specific managed accounts and/or model strategies. 

Trades or adjustments to accounts mentioned in ELLUMINATION may or may not happen in every account managed by portfolio managers at 5T WEALTH,LLC. 

If you are not satisfied with the investment results in your account it is your responsibility to inform Krsek to discuss possible changes that can be made to the account to accommodate and satisfy your needs. 

The assets held in managed accounts at 5T WEALTH, LLC may include stocks, bonds, cash, commodities, foreign exchange or mutual funds or exchange traded funds (ETF's), money market accounts or limited partnerships that represent the same. They are subject to market fluctuation and the potential for losses. The assets are not insured. The value and income produced by these investment products may fluctuate, so that an investor may get back less than they initially invested. 

The portfolio managers at 5T WEALTH, LLC do not guarantee results. 

Past performance should not be considered an indicator of potential future performance. If you do not consider yourself suitable, either emotionally or financially, to experience volatility and/or losses in financial markets, you should not invest. 

From time to time Krsek lists the simple annual returns of the strategies mentioned in this newsletter. These results are from  accounts that are "models" and do not represent the actual results accruing to each clients individual accounts. Simple annual return does not represent "time weighted return" as reported individually to clients in their investment performance reports which are prepared using data and calculations from Orion Advisors. 

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy any securities or other instruments mentioned in it.