Market Update: August 28, 2019

Stocks opened down at the open today but are now up (Dow +111 pts; SPX -+3%) as long term government bond yields dropped below the S&P 500 yield for the first time since 2009.  Nine of the eleven major market sectors are up, with only technology and utilities down.  The VIX Index—a common measure of fear among traders — is slowly moving below 20, to 19.7 this morning.  European markets are mixed as more Brexit political turmoil clouds and Italian government optimism makes for conflicting signals.  Asian markets are also mixed but overall are up roughly .2% currently.  Commodities, excluding gold and gold miners, are up in early trading.  A positive indicator,  gold is down about .4% but oil and copper are up in price.  WTI crude oil is up 2.3% to trade at $56.2/barrel. Bonds are mostly higher — except for bank loans. The 10-year Treasury yield fell below 1.5% yesterday.

Investors initially reacted positively to news of another Johnson and Johnson (JNJ) lawsuit Monday.  Today Moody’s, a bond rating agency reconfirmed  JNJ’s high bond credit rating.  In that same report, however, they warned of potential adverse impact to an important metric, cash flow, due to continuing litigation. The stock is down in early morning trading today.

In other news, Michael Burry, of Scion Capital fame, warned of the next potential market crisis.  Recall that he is famous for warning and capitalizing immensely during the 2008 financial meltdown.  If you have not watched it, the movie “the big short” is a fun way to understand this difficult subject.  He mentioned the use of passive investing strategies by investors in a ‘buy it and forget it” approach as creating a bubble prime for popping.  Conversely, he mentioned opportunities in value and smaller companies as those areas become increasingly neglected.  In related news, passive index funds is now expected to overtake active investing sooner than expected, by 2021 (Bloomberg).


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