[vc_row][vc_column][vc_column_text]Anyone vaguely familiar with the financial markets is aware of the sector that has predominantly led the decade long rally is Technology led by FAANG and semiconductor stocks. It makes sense as these leaders have increased productivity and lowered consumer prices burying the usual inflation bump associated with the free money strategy employed by the world’s Central Banks. The month of May has revealed they will also lead to the downside.
SEMI’S IN PLACE
I have written many times how the Semiconductor sector is often the quintessential “Canary In The Coal Mine.” Like clockwork they are often the first sector to rollover hard at tops and in turn lead stocks off the bottoms. They led equities from the Xmas lows (up 50%) to being the most assertive new all time high (nearly 10% higher) while most failed to make new highs.
Sell in May came into play in a big way for this core component of the economy beginning its descent a couple of weeks prior to most. Last week it confirmed its leadership position making a newer low for the month. Newer lows are often a confirmation the market is in correction mode. The #2 weighted stock is Taiwan Semiconductor with a knockout combo applying to Emerging Markets as well.[/vc_column_text][vc_single_image image=”1328″ alignment=”center”][vc_column_text]Because the break to new highs was so obvious (most were nominal) the failure becomes even more dramatic. Semi’s are down over 15% for May and 18% from the April all time high. Obviously all indices/sectors which made new highs are failures as well, another wounding data point for equities.
An additional confirming cut to stocks is the breakout in the defensive sectors mainly Utilities (shown last week) and REIT’s. These two high dividend players are fueled by the flight to safety in Treasury Bonds. As you can see the ETF for the group (TLT) made a 52 week high Friday and has eyes focused on all time high 5% above. The vulnerability of stocks combined with negative interest rates abroad make an all time high a near certainty?[/vc_column_text][vc_single_image image=”1327″][vc_column_text]I am going to make a REIT recommendation not part of the norm and considered a Special Situation. AFIN is trading at a nearly 50% discount to its NAV and pays a n almost 10% current dividend. The discount is due to some shenanigans from previous mgmt. and current officers APPEAR to be righting the ship. With REIT’s at all time highs I imagine institutions will now sway towards the discount. Only 15% now with typical closer to 70%.
Apparently Sell In May & Go Away is going to be considered a successful move in the 2019 stock market. Odds IMO are before a long term constructive bottom is made, probably a couple of years, stocks will endure a 50% correction, maybe more (remember 2000 & 2007). There will be profitable rallies of 10-20% (we’ll try to catch them), but everything’s a trade as Buy and Hold has run its cycle. Have to make new highs again to negate this Bear Market call.
I am confident President Donald will use the Plunge Protection Team (PPT) as a tool to minimize the pain. But the heavy debt load will be too difficult to handle and a series of support breaks will overwhelm the constant manipulation of equities. Which started in 2009, coincidentally when this Bull Market started. Remember my dry powder statement.
“Your secrets are safe with me…I wasn’t even listening.” – Pelosi to Trump last week