The Fed is about to cut rates for the first time since 2008 as the trade war is weighing on economic growth. Are the rate cuts truly needed to support the economy or is the Fed under political pressure to appease the White House? Last time, the Fed cut rates in 1998 to prevent a slowdown caused by the Asian currency crisis. We all know what happened after the cuts.
This time is very similar to the 1998 rate cuts. The economy is not weak and the rate cuts can only create asset bubbles like easy money always does.
Short term, it is over bought with extreme low volatility. A summer selloff is still on the radar. This selloff will create the last opportunity to get in the market before a grand bull market unfolds.
Long term, this market still has room to run.
- Continued strength in earnings—against the backdrop of easier comparables—is just one of the reasons to question the doom-and-gloom narrative that has kept some investors on the sidelines. Bear markets are typically born out of excessive optimism, coupled with deteriorating economics. Yet investors are still sitting on the sidelines after cashing out of equity funds and ETFs late last year.
- Other key factors also bode well for equities markets. The financial conditions index suggests that the U.S. economy is still very healthy, and, with the U.S. presidential election around the corner, the Trump administration will likely do everything it can to nudge the economy.
- Although the U.S. Treasury bond yield between three-month and 10-year rates inverted earlier this year, it’s now back in positive territory. The initial inversion of the yield curve tends to precede market peaks by a full two years; historically, U.S. stocks have gained 40% on average during that period.
- In another vote of confidence, companies continue to raise dividends, even in the face of lower rates. Notably, nearly half of the companies in the S&P 500 recently had a higher dividend yield than the 10-year Treasury.
Technically, the S&P 500 made a daily cycle bottom on 07/18/2019. Now it is 6 days into the 3rd daily cycle. The 3077 level still remains to be a valid upside resistance.
We mentioned individual stock EB in the past. Eventbrite is in the similar business like LiveNation except it is serving a different market segment. EB will report earnings on August 7 after the market close. If without any additional surprises about the previously mentioned difficulties with Ticketfly platform migration, we believe the post IPO bottom is in at 15.30. Due to the addressable market size and lack of competitors, we believe EB has a real potential to be a multi-bagger.
So watch for EB’s earnings report on August 7. It could be the beginning of EB’s turnaround.