Ever heard of FOMO? “Fear of missing out.” Because we think mutual fund managers are suffering from that ailment at this very moment!!
Dear Clients and Friends,
This week, I want to briefly discuss an interesting phenomenon that we think is happening. For the past several months, we’ve seen mutual fund managers slowly but steadily increase their cash positions. The overwhelming assumption is that mutual fund managers are getting less aggressive as the economy loses momentum; therefore, they are holding less stock in their arsenal. But in the last few weeks, we’ve seen a sharp decline in the amount of cash on hand within mutual fund portfolios. This can only mean that these managers are purchasing more stock and becoming more deeply invested in the market - at least for now. The news media seems to be assuming that fund managers perceive a marked improvement in the economy. We disagree!
We think that fund managers believe that President Trump is likely going to resolve the Chinese Tariff War within the next few months in order to avoid an economic stressor hanging over his campaign for re-election. Therefore, we think that fund managers “fear missing out” on a potential spike in the stock market related to the end of the trade war. Additionally, the fourth quarter tends to be good for the investment markets. The S&P 500 Index has averaged a 4% gain in the final three months of the year over the past decade, according to a CNBC analysis of Kensho (a market data analysis platform). The S&P 500 has traded positively 80% of the time during the fourth quarter of the year. The Dow Jones Industrial Average has added 5% in the fourth quarter over the past 10 years, trading positively 80% of the time.
However, we continue to see mixed economic data related to the health of the US economy. Unfortunately, while mixed, we see more bad news than good. In fact, the last two days serve as a great example. Here are some of the metrics that came through the wire on Friday morning:
Time Name Period Actual Consensus
8:30 AM US - Empire State Mfg Survey (Nov, 2019) Nov 2019 2.9 5.0
8:30 AM US - Import and Export Prices (Oct, 2019) Oct 2019 -0.5 % -0.2 %
8:30 AM US - Retail Sales (Oct, 2019) Oct 2019 0.3 % 0.2 %
9:15 AM US - Industrial Production (Oct, 2019) Oct 2019 -0.8 % -0.4 %
10:00 AM US - Business Inventories (Sep, 2019) Sep 2019 -0.2 % 0.1 %
Here we see 2 data points that came in better than expected, while 3 came in worse than expected (keep in mind that a lower number for Business Inventories is often better than a higher number). So, again: a mixed bag, but more bad than good.
In conclusion, we continue to see growth within our economy, but it is slowing. We continue to see more questionable metrics than encouraging ones, yet both are still prevalent. However, at least in the short run, many fear that they will miss out on a stock market spike. We share this concern and have thus tried to position ourselves to benefit from such a spike without re-introducing the risk that we have delicately reduced over the last few months.
Feel free to call us with any questions. In the meantime, we wish everyone a wonderful weekend.
Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC
1801 Market Street, Suite 2435 Philadelphia, PA 19103 P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |
601 21st Street, Suite 300 Vero Beach, FL 32960 P: 772-453-2810
The majority of this content was written and distributed MOR Wealth Management, all rights reserved. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Fixed insurance products and services offered through CES Insurance Agency.