The big news that affected the market this week was, of course, the dreaded yield curve inversion. This happens when the 10-year Treasury yield goes below the 2-year yield. Historically this has been a reliable indicator that a recession is in the future, though the timing of recessions has been variable; in some cases the market has run significantly higher post inversion before turning south.
The inversion sent all the Chicken Littles running for cover because the sky is falling and the death of the bull market is now a given. Recession is sure to follow.
Or is it?
Opinions are pouring in from around the globe and imminent disaster is far from the consensus. The sun has risen every day this week.
Many, including former Fed Chair Janet Yellen, point out that in a world where money knows no borders the U.S. can’t go it alone. If rates elsewhere around the globe are going negative that’s going to distort what happens here in the U.S. too.
Bottom line here, guys, is that we can’t assume that what’s happened in the past will happen again. Times do change and just because one signal worked in the past doesn’t mean it will work consistently in the future, especially when there are many complicating factors. Also, a short inversion blip doesn’t mean the yield curve will be consistently inverted over the next month, quarter or year.
I’m not saying the U.S. economy is in perfect shape. We’ve been hosting the annual Cabot Wealth Summit this week in Salem, MA and in speaking with subscribers from around the country it’s clear that some areas of the country are doing better than others. Overall, things seem to be skewing positive.
We need to keep doing what we’re doing and try to stay plugged into the right growth trends. And be wary of the souring trends, and those that just don’t seem to be durable enough to fight back the multitude of challenges that exist out there.
One of the trends that’s been wavering lately is the strength of MedTech stocks. This led us to cut Codexis (CDXS) recently. And it has also pulled down CareDx (CDNA) and Quanterix (QTRX). Meanwhile, Repligen (RGEN) has been as steady as a stock can be.
I’m not ready to cut either of these stocks yet, but I’m watching them closely. Broadly speaking, this weakness isn’t unique to just our MedTech stocks. This chart of medical products stocks from William O’Neill illustrates this point. It’s below its 200-day line.
Around the rest of the portfolio we’ve seen most of our stocks move down this week, but not so much that I’m making any ratings changes. It’s been a wild week due to the yield curve concerns, and with the market pointed higher today we’re going to sit pat.
There’s no major news related to any of our stocks this week, with the exception that we finally have an earnings date for Domo (DOMO), which will report after the close on Thursday, September 5. And that Quanterix closed its secondary stock offering, which was priced at 25.25. The stock is above that level now, which is an indication of high demand in my view.
I’m going to cut myself off there as it’s time to get back to the Summit. I’ll be back in touch next week with the usual Weekly Update, which will include updates on all our stocks.
