The Big Chill, Stall

The Big Chill is a 1983 American comedy-drama film directed by Lawrence Kasdan. The film focuses on a group of baby boomers who attended the University of Michigan (UoM), reuniting after 15 years when their friend Alex commits suicide. Harold Cooper is bathing his young son when his wife, Dr. Sarah Cooper, receives a phone call at their home telling her that their friend, Alex, has committed suicide. At the funeral, Harold and Sarah are reunited with college friends from the UoM. They include Sam, a television actor; Meg, a real estate attorney in Atlanta; Michael, a journalist for People, Nick, a Vietnam War veteran and former radio host; Karen, a housewife from suburban Detroit who's unhappy in her marriage to her advertising executive husband, Richard. Also present is Chloe, Alex's younger girlfriend.

This morning, however, we changed the name from The Big Chill to The Big Stall because on June 3, 2019 we issued a “Trading Flash” stating that we though a trading bottom was being formed. At the time the S&P 500 (SPX/2886.98) was trading at ~2729. Four sessions later, Thursday 6-6-19, the SPX was changing hands at 2852 and we scribed another “Trading Flash.” To wit:

“Our models are suggesting a stall in the upside into mid/late-June. This morning (6-6-19) the preopening S&P 500 futures are up by some 6-points on no real overnight news. Traders should react to Draghi’s dovish ECB Communique. That combined with other metrics is likely what lifted stocks yesterday. This morning’s economic number did not surprise. We think the equity markets stall for a few sessions.”

On Jun 6, 2019, the day of our last “Trading Flash,” the SPX tagged 2852. As of last Friday, the SPX closed at ~2886, a mere 34 points higher than it was on 6-6-19. Indeed, The Big Stall. Still, our work shows the stock market’s “internal energy” is basically used up and it should take a few more sessions to rebuild said energy. Ideally, it would be picture perfect if the SPX would pullback to the 2825 -2835 level, but our short-term proprietary model suggests the downside will likely not be that deep. We think over the next few weeks the equity markets will reenergize and breakout to new all-time highs. That is consistent with our “secular bull market call” since October 2008.

This week the markets should put on “rabbit ears” for the FOMC meeting. It is widely expected for the Federal Reserve to cut interest rates. By our pencil the economic data is not anywhere suggestive of a rate cut. However, the Fed needs to consider other factors like the shape of the “yield curve,” falling inflation, the escalating trade tiff, Iran, etc. . . . Last week a major investment bank came out and stated that there would be no rate cuts this year, which is kind of how we feel. Such rate worries have caused our phone to light-up with the ubiquitous question, “What should I do with the fixed income allocation in portfolios?”