July 2018 Market Letter

“Oh the times, they are a changing”

Bob Dylan wrote this poignant and prescient song in 1964. It predated the tumultuous end of the 60’s decade and the early 70’s, at least through the impeachment of President Nixon. I’ve stated many times in these missives that conditions today in America are eerily similar to fifty plus years ago, with the exception of the military draft. History has repeatedly shown us that for every trend, there is a counter-trend. The current Trump administration lies in stark contrast to the Obama years, as did that Presidency contrast with that of Bush II. I feel that there’s a more marked difference now, however, because we’ve returned to the stark tribalism and divisiveness of the late 1960’s. President Trump has become a polarizing figure no less powerful than the Vietnam War. Let’s just look at some of the events that occurred in June:

1) Migrating families were separated at the southern border, and over two thousand children still have not been reunited with their parents.

2) President Trump had a historic meeting with North Korea’s Kim Jong Un, and also scheduled a tete-a-tete with Vladimir Putin in July.

3) Supreme Court Justice Kennedy announced his retirement, giving President Trump the opportunity to nominate his second person to the bench.

4) Trade relations with overseas partners got increasingly testy as tariff escalation continued.

5) Anti-immigration policy rallies were held Saturday in all 50 states.

6) Another mass shooting occurred, this time at an Annapolis newspaper.

Lots to discuss, to be sure. Overall, a good month for the President and the Trumpian (not overly Republican these days) agenda. The Supreme Court appointment is arguably the most critical of the above points since it will possibly shape social mores for years, if not decades, to come. Foundational issues such as women’s rights to choose and same-sex marriage would appear to be in the legislative crosshairs again. Democrats at this point are leaderless, rudderless, and feckless. The Senate successfully blocked the opportunity for President Obama to appoint a Supreme Court Justice in 2016, but Democrats seem toothless in their attempt to do the same now. Oh the times, they are a changing.

In contrast to the daily news hubbub, the stock market has had little change in the first half of the year. June began on a promising note, but fizzled at month end. The result is that portfolios are treading water with little direction in sight. Volatility has increased, and looks to remain so in the summer months as trading volume slackens. There were some anomalies in June. The financial sector ETF was down thirteen consecutive trading days as the bond market successfully resisted the 3% ten year Treasury level. Overseas markets, particularly emerging nations, suffered outsized losses as a result of tariff squawking. Even the high-flying large cap tech names were not immune to selling.

The macro story for equities hasn’t changed much. The recent quarter of corporate earnings was strong, and company balance sheets are for the most part fortresses. The effects of tax reform haven’t really kicked in yet, and they should be accretive for some time to come. Inflation remains tame, and interest rate sensitive sectors haven’t been drastically affected by increased borrowing costs. Companies are increasing dividends and buying back their own shares. This should be an optimistic backdrop, except for two major potential roadblocks.

The first of these is the flattening Treasury yield curve. The difference between the two and ten year rate is under 50 basis points. Many pundits feel that this is a harbinger for a recession. While this has been true on a number of occasions, let’s remember that economists have predicted ten out of the last three recessions. That’s not a typo.

The far greater risk in my opinion is continued tariff activity. The ripple effect of sanctions across the world involving many production categories is just beginning to be felt. I’m frankly not sure whether the powers-to-be in the Trump administration fully understand what’s happening here. Tariffs on lumber, steel, and aluminum cannot help but increase consumer costs for housing and cars. Supply chain problems are already being seen. Retaliation by other countries is hitting home. Canada and Mexico each decided to put a tariff on pork, thus lowering producer sale prices for American farmers. Soybean and corn crops may not be profitable either. On the manufacturing front, Harley-Davidson announced that they would be shipping jobs overseas. The irony here is that those who might be most profoundly affected by the tariff policies are the base of Trump’s popular support. Since the President hasn’t backed down on much during his tenure, I’m not sure that the current trade climate won’t become more toxic in the months to come.

As the mid-term elections loom in November, America will be given another chance to exercise its choice via the ballot box. Control of the House and Senate is at stake, not to mention the populist agenda of President Trump. The continued Mueller investigation could take center stage between now and then. Last Saturday’s protests might have legs… we’ll just have to wait and see. My feeling is that Bob Dylan is being America’s fortune teller again.

We’re celebrating our country’s 242nd birthday on Wednesday. Let’s not forget what created American values almost two and half centuries ago. Thanks as always for your support and trust. I look forward to hearing from you soon. Try to stay cool.


Bill Schiffman

Registered Representative


The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.