Over the past 15 months, the S&P 500 (SPY) has been mostly contained within the 2,600-2,800 range.
Some pundits said, before the new year started, that one thing is for sure: 2019 is going to be a difficult year for investors.
So far, indeed it is (not)...
The S&P 500 is on track for its strongest first quarter since 1998.
Economists have generally been expecting more Fed rate hikes than the market, but even they don’t see more than one more rate hike this cycle
It will be hard for Fed Chairman Powell to really impress stocks at this point, given the already-elevated, i.e., very dovish, expectations out of the Fed. Consensus now anticipates no more rate hikes in 2019, with normalization ending as early as September this year, at ~$1.3T reserve balance.
To exceed those expectations, the Fed's "dot plot" would need to have no dots at all, neither in 2019, nor in 2020 with reserves at ~$1.4T by September or earlier.
Possible? Perhaps, but surely not probable.
None of the 100 largest ETFs is delivering a negative total return, so far, in 2019. None!
Small-cap growth/blend (VBK, IWO, VB, SCHA, IWM), Technology (VGT, FDN, XLK), and Mid-cap growth/blend (IWP, IWR, VO) are leading the way, but even long-term (TLT) and short-term (SHV, SHY) US Treasuries ETFs have managed to stay in the green thus far this year.
With the exception of Qatar (QAT), every country ETF is positive in 2019, with an average return of +11%.
This is the best start to a year since 1987 (although we all remember what 1987 eventually brought with it, on October 19th, 1987...).
South America - Colombia (GXG), Argentina (ARGT), and Brazil (EWZ) - is leading the way, but Europe - Greece (GREK), the Netherlands (EWN), Ireland (EIRL), and the United Kingdom (EWU) - aren't too far behind.
Brexit? Who/What the hell is Brexit?... When money is growing on trees who needs to worry about tiny things like Brexit?...
To put things in the right context, here's how much investors like EM bonds, even after the recent rally. This local-currency EM bond ETF (IEML, trading in London) just saw its biggest one-day inflow in its history!
In 2009, the number of unemployed people in the US exceeded the number of job openings by almost 13 million.
Today, the number of job openings exceeds the number of unemployed people by about 1.4 million.
The unemployment rate among OECD member-countries is as beautiful as a bullish chart can be.
The total amount of negative yielding debt is now greater than $9.2 trillion.
Even after we've passed the 10th anniversary since the market bottomed on March 9th 2009, there are 18 countries with negative bond yields.
Ten years of global economic expansion is, apparently, not enough.
Let's not forget the partially inverted yield curve that we see for few months already.
Poverty and Distribution of Wealth
We sometimes focus so much on the negatives, and what else is still needed to get fixed, that we forget to look at the bright spots, and there are plenty of those too.
On one hand, the world has come a long way over the past 200+ years, when it comes to dealing with poverty.
On the other hand, the distribution of wealth in the the US is almost as bad as it was in 1917.
Circa 100 years went by and we're back to square one.
- Berkshire Hathaway Is Consuming A Very Bitter Ketchup From Kraft Heinz (663 comments, and counting)
- Berkshire Hathaway: Are Warren Buffett & Co. Losing Their Midas Touch? (248 comments, and counting)
Let's combine the two - Berkshire Hathaway and technology - shall we?
Total returns over last 10 years:
- Nasdaq 100: Invesco QQQ ETF (QQQ) +567%
- Dow Jones: SPDR Dow Jones Industrial Average ETF (DIA) +342%
- S&P 500: SPDR S&P 500 ETF (SPY) +337%
- iShares Russell 2000 ETF (IWM) +331%
- Berkshire Hathaway Inc. (BRK.B) +273%
In case you wonder whether migration is a good or bad thing for US growth, the below chart - showing the impact of migration on US GDP - is providing a clear-cut verdict.
In spite of the growth rate still seeming healthy, there are signs of the economy slowing down.
The funny thing is that the most worrisome sign of them all - the US 10-year Treasury yield (trading at very distressed levels) - has nothing to do with growth directly.
“Pain trade” for stocks is still up, according to BofAML's (BAC) March Global Fund Manager Survey ("FMS").
The FMS finds that profit expectations rose, rate expectations fell, yet allocations to stocks dropped to their lowest level since September 2016.
Credit concerns remain the key macro bull barrier.
Fund managers' ("FM") main concern is about the corporate leverage levels, near all-time highs. FM rather see a corporation making a good use of free cash flows, in order to tackle the following (sorted in order of preference, based on the percentage of FM responding to the FMS):
- Improving balance sheets (46%)
- Increase CapEx (29%), from its lowest levels since October 2009
- Return cash to shareholders (18%)
"Hard landing in China", the world's second largest economy, has replaced "Trade War" as the number 1 risk, according to the FMS.
“Short European Equities” (VGK, EZU, HEDJ, FEZ, IEUR, BBEU, IEV) is now the most crowded trade, for the first time in the FMS history, replacing “Long EM” (VWO, IEMG, EEM, SCHE, SPEM, DEM, GEM) which drops to 4th place.
In between, "Long USD" (UUP) and "Long FAANG+BAT" - i.e., Facebook Inc. (FB), Amazon.com Inc. (AMZN), Apple Inc., Netflix Inc. (NFLX), Alphabet Inc. (GOOGL) (NASDAQ:GOOG), Baidu Inc. (BIDU), Alibaba Group Holding Ltd. (BABA), and Tencent Holdings Ltd. (OTCPK:TCEHY) - are ranked 2nd and 3rd most crowded trades, respectively.
Trade accordingly! (or not...)
Remember: The biggest risk is sometimes the one you're neither seeing, nor anticipating; or simply ignoring.
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Disclosure: I am/we are long FB, BABA, TCEHY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.