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BCN Advantage - 2019 Annual Report		February 21, 2020
Jeff Bratzler, CFP	BCN Financial
For 2019, the S&P 500 gained +28.9% to 3,231, the Nasdaq +35.2% to 8,973, and the Dow +22.3% to 28,538. The IBD Mutual Fund Index rose +29.59%. Over the decade, the S&P 500 gained more than +250%, the 80th percentile for rolling 10-year periods. The longest economic expansion on record is well into its 11th year. Widely watched yield curve inversions had many on Wall Street fearing recession. The Fed began ratcheting the Fed funds rate lower in August. By the end of 2019, rates had been cut three times. Historically, whenever the 10-year treasury yield slips below the Fed funds rate (as happened in 2019) the Fed is too restrictive, and the economy is in danger of slowing down. At 1.57%, the 10-year Treasury rate is once again dangerously close to the effective Fed funds rate of 1.55%. If the U.S. economy continues to outperform its global counterparts, the U.S. will continue to import disinflation and force the Fed to keep cutting rates. But slowing global growth could eventually throw the U.S. intorecession. Following his semiannual report to Congress in February, Jerome Powell explained why the Fed is “not comfortable” with inflation running persistently below their 2% objective: “We would have less room to reduce interest rates to support the economy in a future downturn, to the detriment of American families and businesses.” The Fed has no interest in raising interest rates anytime soon. Meanwhile, Wall Street is assigning a 65% probability for at least one more quarter-point rate cut in 2020. And the Fed is once again expanding its balance sheet, adding $400 billion in the past four months alone. Corporate buybacks have been the largest source of U.S. equity demand over the past decade, as retail and institutional investors have been net sellers of U.S. stocks for most of this bull market. Overleveraged corporations will likely curtail buybacks when the next recession hits, a factor that would intensify any downturn. 2019 was driven by multiple expansion rather than earnings growth, as the trailing 12-month P/E for the S&P 500 has now ballooned to 24.5 (vs. 20.2 on average since 1978). High valuations are not predictive of market tops but do indicate risking risk for a 20% or greater market correction. The so-called “Buffett Indicator” is the ratio of the total stock market to GDP. Its level at the end of 2019 was double its seven-decade average and higher than any other year with one ominous exception – 1999, at the top of the internet bubble. Worth noting, Buffett has built up Berkshire Hathaway’s cash pile to a record $122 billion. The sustained rally since October has caused many investors to worry that a "bubble" or "melt-up" is underway. From the October 2, 2019 closing low of 2,887 the S&P 500 has gained 17%, close to matching the 18% rally in January 2018. But we’re not seeing the excessive enthusiasm that accompanies the final stages of a blow-off rally. The most likely cause of the next major stock market decline will be the Fed’s delayed or perceived inadequate response to even a mild economic downturn. Little firepower is left in most of the developed world for QE to have more impact. Global central bankbalance sheets have grown from roughly $5 trillion in 2007 to $21 trillion, equivalent to the size of the entire U.S. economy. More than $15 trillion of debt has already been issued at negative interest rates. Short of buying stocks outright (as Japan has done), there are few levers left for central banks. And fiscal stimulus would arrive too late to avoid the damage to asset prices. The two pillars of the vaunted “Goldilocks” economy are (1) reasonably robust growth and (2) subdued inflation. Wall Streetconsensus expects S&P 500 companies to grow earnings-per-share by 8% on top of revenue growth of 5%. Notably, the ISM manufacturing PMI rose to 50.9 in January. Since 1999, a move back above 50 has coincided with an average of 18% earnings growth for S&P 500 companies. Assuming inflation remains anchored, “Goldilocks” could be in the driver’s seat again in 2020. But we’re keeping a close eye on valuations. As the S&P approaches 3,500, a trailing 12-month P/E above 25x will be cause for concern. Yet another Fed pivot to hiking interest rates seems unlikely (especially in an election year), but market internals (most notably corporate earnings) remain especially critical this late in the economic cycle. Signs of deteriorating earnings will certainly push us into a more defensive stance.

Key Indicators Point to Over-Exuberance on Wall Street		December 29, 2020
Brian Sozzi	Yahoo - Finance
A stock market in full-on autopilot mode headed into 2021 could be nearing a breather if for no other reason than investors may need some time to reassess ever climbing stock valuations amid numerous macro risks in the months ahead. The over-exuberance on the Street is front and center in the latest ...

Waning Stock Buybacks May No Longer Support Prices		December 21, 2020
Lance Roberts	Seeking Alpha
In 2019, corporate share repurchases, or "stock buybacks," had accounted for nearly all buying in the market. A year later, that significant support for asset prices has reversed. While markets have certainly been on a tear this year, due to massive amounts of federal stimulus, it has been an advance ...

COVID-19 Cases Surge into Holidays		December 11, 2020
Seana Smith	Yahoo - Finance
As COVID-19 hospitalizations surpass 90,000 for the first time, a record for the seventeenth day in a row, Dr. Andre Campbell, a trauma surgeon at Zuckerberg San Francisco General Hospital, warns the U.S. could be facing an “apocalypse” next month. The rampant spread of the novel coronavirus has pushed ...

Another Round of COVID Stimulus May Not Jolt Economy		December 10, 2020
Brian Sozzi	Yahoo - Finance
A fresh round of stimulus from a bickering U.S. government may do nothing more than plug a hole in the worsening finances of COVID-19 impacted households. In other words, those on the Street expecting a jolt to economic growth could be quite misguided. More Americans would put new stimulus checks toward ...