It’s hard to believe 3/4 of 2019 is already in the books.

The lingering trade war with China and the prospect of more trade wars with Europe and any other comers has created uncertainty in corporate boardrooms and with investors.

As a result, the US economy has not been able to sustain the momentum it had following the revamping of the corporate tax code. In fact, some of the recent data is more concerning than just a loss of momentum.

ISM Manufacturing Index at 47

Last month the ISM Manufacturing Index came in at about 47, the worst reading since 2009.

A reading below 50 means that US manufacturing is contracting.

Federal Reserve cut interest rates for the second month in a row

In response to weakening signals in the economy, the Federal Reserve cut interest rates for the second month in a row.

Fed action and continuing signals from The White House that a resolution to the trade issue is imminent, has kept the stock market from falling.

Having said that, following the ISM Manufacturing report the Dow Jones Industrial Average declined over 300 points. This begs the question,

“How long will the market remain patient with the back-and-forth over trade?”

While trade is most likely the primary concern for stocks, there are two other factors that I am concerned about.

Brexit concern

The first is Brexit.

On one hand, the UK economy is not nearly as big nor as important to global growth as the US or China. Any damage from a UK “crash out” should in the intermediate and long-term be relatively benign to the global economy.

However, economic activity is set on the margin and any fall-off in global demand will be felt in the short-run.

WeWork failure

The second bearish observation to note is the failure of WeWork, a darling of the private equity unicorns, to garner enough investor interest at the desired price to pull off an IPO.

While much as been written of the high valuations of the FAANGs, the most over-valued space in the marketplace looks to be in private companies that have gripped the private equity and venture capital world with the promise of “disruption”.

Each new round of private financing brought, on paper and within the private capital world, higher and higher valuations despite little or no profits.

The public markets are more discerning. Recently, when the private investment world has ventured into public offerings, the results have not been good. Uber, Lyft, Slack, and others have seen their stock prices drop significantly since their IPOs.

Public investors want to see a path to profitability. They also are not happy with stock offerings where the proceeds go to the private owners, not the company itself.

Why buy from an insider who is selling? Bull markets end when excesses become extreme and investors finally pull back.

It is possible we are witnessing the beginnings of a re-pricing of companies. I’m not suggesting the end is here. I think a trade deal will come and the market will rally. However, I am concerned that the late innings of this bull market are close if not here.

— Ian Green, Pendragon Capital Management

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Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.