Higgins Capital Management, Inc.

Buildup to 2020 Elections and Buy the Dip

The Economy: The Mid-Terms have eclipsed all measure of economic news. With that watershed event behind us, year-end is now in sight. Today the Fed finished its two-day meeting with no change in interest rates. Projections are for another 1/4 point hike in December and 4 more 1/4 point hikes in 2019. But looking out a year and trying to estimate what the Fed will do is a fool's game. Every recession has been preceded by interest rate hikes. We're now into the 2020 Presidential Cycle and the last thing the administration wants is to have a bad economy on its hands when voters next head to the polls. So there could be one of the following two strategy options: A) Allow the Fed to tighten, induce a quick recession and hope to have the economy come back by the 2020 elections. Or B) Pressure the Fed to end or slow the rate hikes and hope that the expansion continues through the 2020 elections before finally running out of steam. Which Witch is Which?

Food for Thought: Buying the dip has been the right trade for so long it's gospel.  The only action that investors know is that selling into a downturn was the wrong trade. Even corporate buybacks have learned to buy the dip. But only taxes and death last forever. Year-end rallies have almost become institutionalized; so we'll probably see one this year as well. But investors should clearly understand that  the market action in 2018 has shown that ‘buy the dip’ is on its way out.