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Weekly Memorandum 2/3/2020

Both the Dow and the S&P 500 closed down for the month of January, but the Nasdaq closed up. In terms of seasonality, January has served as a decent barometer for equity performance for the remainder of the year. With 2 of the 3 major indices down for January, it may serve as a warning that stocks won't be returning 30% like they did in 2019. But that doesn't mean that stocks will have negative returns in 2020. Keep in mind that it is also an election year, and last time in 2016, we saw stocks do almost nothing for the majority of the year.

The most notable performances last week came from Treasury bonds and precious metals. Bonds have already almost exceeded 2019's high, as investors seek safety in light of coronavirus threats. With respect to precious metals, gold closed at its highest level since mid-2013, although silver continues to lag. This is a signal to us that there is still a lot of value in silver, at least on a relative basis.

Crude oil also fell to its lowest level since early-2019. It now is trading against an important level of support, which if broken, could lead to drastically lower prices. While this may benefit consumers at the gas pump, it would present a tremendous problem for inflation expectations, and likely aid in pushing interest rates even lower.

In the overnight session during the Super Bowl, Asian equities gapped down, in some cases over 8%. They recovered somewhat into the close, but the futures' market weakness did not carry over into Europe or North America as equities are trading in slightly positive territory. This is a great example of capital flight, where investors are basically trying to get the hell out of Dodge, and turn to funneling their capital into other countries. Given that last week's and last month's closes were bearish for stocks, we still look to see the sell-off continue in the short-term. But in no way is the secular bull market under threat just yet.

Remember, markets move in cycles, just like nature, and just like life. Ignore them at your own peril, although it certainly helps to try to align oneself with them.

Have a great week.

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