… is what the Money Managers seems to say to the recent stress tests. Banks cleared the stress test successfully but they could not take the stress out of the Markets as the yield curve keeps flattening and the spread between the 2 yr / 10 yr Treasury came down to a razor thin 25 basis points! Now all eyes are on the upcoming Bank earnings in couple of weeks and hopefully that will be the catalyst for this beaten down sector.
It is always interesting to see the score at Halftime as we come to the end of the second Quarter. Dow is “down”, S&P marginally up by 1% and Technology started to roll over in last couple of weeks. The second half will be very important as we head into midterm elections and the trade War rages on. We all know that Trump likes to tout about the Markets so that should be a plus. He would not want to mess around and see the Markets go down the toilet and hopefully intends to use the Trade Tariffs as a negotiation technique only. Industrials are feeling the pain and that is reflected in the price-weighted Dow.
Last, but not the least, emerging markets are slipping through the cracks as the dollar keeps climbing. Oil is at a multi-year high and inflation will pop its ugly head sooner than you think. This will aggravate the pain of developing countries like India, China, Brazil etc. and that is reflected in the index EEM. For countries like India inflation is more important than the Markets (Thanks to Modi, unlike Trump) and they will have to take necessary steps. This may drain the foreign investment and further boost the dollar.
Have a happy end of the Week/Month/Quarter to all of you and may the upcoming July 4th fireworks light up your portfolios too!