With new market highs, The Bulls garnered the “treats”, while the Bears were “tricked” again.
A Global stock market rally is underway as key markets are showing strength.
Another hint for the skeptics, “Watch The Price Action”. Losing sight of the "trend" has been costly.
Anyone worrying about "trade tariffs" has missed the train.
“Follow the trend lines, not the headlines.” ……. President Bill Clinton
Despite the fact that the S&P 500 has meandered around during the last few months, the all important “uptrend” got a boost this week with another new all time high. Surprise ! That makes it number 220, 221, and 222 in this Bull Market cycle, which is quite remarkable. In a bull market the surprises often come on the upside.
The index stands about 12+% off the June lows. That was the last time investors were warned about a correction that would peak in the seasonally weak September - October time frame. During that time there was plenty of discussion why the market could go lower and what would be required to make new highs. In the minds of many, the scales were tilted to the downside. Sometimes the stock market just does what it wants, and frustrates as many people as it can.
A 3 month extension on Brexit, positive comments on the U.S.-China trade situation, and the 10 year treasury at the highest level since early September, were all factors contributing to a positive opening for the week. When the S&P closed at 3,039 on Monday, it extended the current bull market to 3,885 days; easily the 2nd longest on record but still nearly 2 years away from being the longest. However, this Bull is more than double the average bull market in terms of both length and gain.
Corporate earnings, the FOMC, and economic data filled investors' plates. The Fed announcement on interest rates came and went as investors watched stocks continue to move higher. Conflicting stories published on Thursday had investors hitting the pause button, as some continued to report a positive tone, while others seemed to throw cold water on the prospects of any long term resolution ever being accomplished. Not a great revelation on the longer term issue, that should have been recognized quite some time ago. Positive economic news, and a more upbeat tone from both sides on the trade negotiations on Friday, took the S&P to another all time high. Buying was widespread as the Nasdaq Composite also posted a new high.
What a difference a year makes. Last October the S&P fell 5%. This year the month closed out with a 2% gain. The correction period that was forecast to commence in September-October posted a gain of 3.7%. The S&P now sits with a 22+% gain for the year. Let's also be fair and balanced and recognize the 6% loss for the index in 2018. Since January 1, 2016 the S&P is up 50%. That represents a portion of what a secular Bull market looks like.
Rest assured, a new round of uncertainty will be surfaced to douse the rally. However, the Bulls can rally around the fact that past history may be on their side. Seasonality is typically in favor of the Bulls during the last two months of the year. Then again, that wasn't the case last year, probably due to anxiety over the Fed raising rates. This year they are cutting rates.
Both camps will agree there have been more shocks than anyone would like to see in just a short period of time. Trade angst, recession fears to impeachment and everything in between have kept plenty of people on edge and unsure of how to proceed in the stock market. Some have come to realize that panic attacks, which resulted in pullbacks and corrections, have been followed by relief rallies. Those that have followed that "trend within a trend" have fared very well.
So it will behoove investors to watch the “trend” and keep this concept in mind. Strength begets strength. A view that has been the mantra for anyone that has remained bullish for a while now. For those that have experience in the markets they realize it is necessary to constantly be on the lookout that they haven't become too fixated on their way of doing things. It leads to a problem where anything new isn't accepted too well. That includes data that is changing.
Constantly collecting and processing information is necessary to determine whether a status quo situation exists, or if action needs to be taken. Being flexible and learning isn’t easy for adults. We become set in our ways. There is a simple reason for that. Assuming you already know everything there is to know is much easier. "Easy" is always the path of least resistance. It is more comfortable, and it’s the brain’s first choice. Problem is a lot of times it is the incorrect choice. Therefore it is critical to keep an open mind and remain flexible during this process.
When it comes to that concept, the market skeptics have failed miserably. Yet they will be the first to tell anyone that wants to listen how THEY have all of the answers.
The first look at 3rd Quarter GDP rolled in at 1.9%, stronger than expected, after slipping to a 2.0% clip in Q2 and from 3.1% in Q1. Consumption was up 2.9%, also above forecast, from the surprisingly robust 4.6% in Q2
The BOOGEYMAN, recession. The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
Here is the problem with trying to time the stock market by obsessing over a recession signal, then calling for a recession. It’s a fool’s errand because anyone can give you the exact start and end date of the next recession and you will still have a hard time making money from that information.
Stock market cycles rarely line up perfectly with economic cycles. The equity market is simultaneously forward-looking, backward-looking and maybe even sideways-looking so the fall in GDP is never going to line up perfectly with the decline in stocks.
“The stock market tends to perform reasonably well during the actual start of a recession until it’s officially done (as determined by the National Bureau of Economic Research). And more than 60% of the time, the S&P 500 was positive during the technical definition of a recession.”
Stocks are also fairly terrible at predicting the onset of a recession as you can see from the returns leading up to the start date of a recession:
Chart courtesy of Ben Carlson
“And waiting for the dust to settle is harder than it sounds. The economy can remain sluggish in the aftermath of a recession but the stock market may still be rocketing higher in anticipation of relative improvements.”
More often than not, the “horror” story isn’t the actual recession. It is wasted time and effort attempting to be the genius that tried to time the event. Let's remember, last week it was pointed out that many geniuses have been wrong with their recession forecasts for seven years now.
Dallas Fed manufacturing index dropped 6.6 points to -5.1 in October, weaker than expected, after slipping 1.2 points to 1.5 in September. It is the lowest since July, and was at 28.1 a year ago. The employment component fell 7.8 ticks to 11.0 after climbing 13.3 points to 18.8 in September.
Chicago Fed National Activity index is a weighted average of 85 existing monthly indicators of national economic activity. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend. The Index was –0.45 in September, down from +0.15 in August.
Chicago PMI dropped 3.9 points to 43.2 in October, weaker than expected, after sliding 3.3 ticks to 47.1 in September from August's 50.4. This is the lowest reading since Dec 2015. The index was at 59.4 a year ago. The 3-month moving average dropped to 46.9 from 47.3 and was at 52.2 in June. The very low reading was likely a function of the UAW strike.
IHS Markit final U.S. Manufacturing Purchasing Managers’ Index posted 51.3 in October, up slightly from 51.1 in September. The latest headline figure was the highest since April, but remained consistent with only a modest improvement in the health of the manufacturing sector. The overall rate of growth remained well below the long-run series average
Chris Williamson, Chief Business Economist at IHS Markit;
"Tentative signs of renewed vigor are appearing in the US manufacturing sector, with the survey’s production gauge having now risen for three successive months to suggest that the soft patch bottomed out in July. Growth of new orders hit a six-month high, fuelled in part by a renewed increase in exports, prompting producers to take on more staff, with payroll numbers rising at the quickest pace since May.”
"The improvement in current conditions was matched by a lifting of business optimism about the year ahead to the highest seen since June. It was also encouraging to see this optimism feed through to an upturn in demand for investment goods, such as plant and machinery, as this hints that firms are moving back into expansion mode, albeit only tentatively so far”
"However, while the outlook has improved, further growth is by no means assured. Survey respondents continue to report widespread concerns over issues such as tariffs, the auto sector’s ongoing malaise, a lack of pricing power amid weak demand and uncertainty about the economic and political situation over the coming year. While the survey data are moving in the right direction, the overall picture therefore remained one of only very modest growth and guarded optimism."
Consumer confidence report revealed a headline drop to a 4 month low of 125.9 in October from 126.3 in September, versus a 16-month low of 121.7 in January and an 18-year high of 137.9 in October of 2018. The headline drop was due entirely to a third consecutive decline for the expectations index, while the current conditions index rose alongside the job strength diffusion index back toward 19-year highs for both measures seen in August.
September Income report tracked estimates with gains of 0.3% for income and 0.2% for consumption after small upward revisions for both, leaving a steady Q3 close for both income and spending. The savings rate climbed to 8.3%, as the rate is proving slow to pullback from the 6-year high of 8.8% in December and February. Both income and spending ended Q3 at slightly lower levels than assumed.
Given that the economy is in year 10 of the recovery, the Job market remains very strong.
October non farm payrolls increased 128k after a revised 180k gain in September (was 136k) and 219k in August (was 168k), leaving a much stronger headline than expected. That left the three month average at 176k. The unemployment rate inched up to 3.6% from 3.5% previously.
Average hourly earnings were up 0.2% versus the prior unchanged reading and were steady at 3.0% year over year. Hours worked were steady at 34.4.
As for other details, the labor force surged another 325k after hefty gains since May, with household employment up 241k after similarly strong prior gains.
The labor force participation rate edged up to 63.3% from 63.2%, the best since June 2013. Private payrolls increased 131k versus the prior 167k gain (revised from 114k), with goods producing jobs falling -26k, and manufacturing dropping -36k, a function of the UAW strike where auto workers declined -41.6k.
Private service sector jobs increased 157k versus the prior 160k (revised from 109k). The government shed -3k, including a -17k drop in Federal employment, largely on the release of census workers with -20k there.
September pending home sales rose 1.5% to 108.7 in September after rising 1.4% from 1.6%) to 107.1 in August. The index is up 6.3% y/y after a 1.0% gain in August. The annual gain was the largest in 4 years. This is another decent report from the housing sector that's seen a number of beats recently, as lower mortgage rates are giving the sector some traction.
Lawrence Yun, NAR’s chief economist;
“Historically low mortgage rates played a significant role in the two straight months of gains, according to. Even though home prices are rising faster than income, national buying power has increased by 6% because of better interest rates. Furthermore, we’ve seen increased foot traffic as more buyers are evidently eager searching to become homeowners.”
"Although contract signings are on the upswing, the numbers would be even greater if more housing were available. Going forward, interest rates will surely not decline in a sizable way, so the changes in the median price will be the key to housing affordability. But home prices are rising too fast because of insufficient inventory.
“In addition to boosting traditional home building, we should explore a greater utilization of modular factory constructed homes, converting old shopping malls or vacant office space into condominiums, permitting more accessory dwelling units, and other supply-increasing actions, in order to meet the rising demand for new housing.”
The Global stock market rally continues, and that is confirmed when we see Global ETF’s solidly overbought. A large number of indices are either at, or are very close to 52-week highs. Thanks to up trends that started earlier this year, most of the world’s equity markets are very close to 52-week highs.
Across 29 major global equity indices, 12 are within 1% of the best levels of the past year, with a further four getting within 2%. China still lags as only Chinese stocks (onshore and offshore) are more than 10% from the best levels of the past year.
The highest yielding index in the world is the UK (4.74%), with Italy and Spain offering similarly attractive yields. Australia and Singapore both yield over 4% too.
For the better part of the last decade, U.S. equities have outperformed the rest of the world consistently year in and year out, and any shift towards balanced performance or international out performance would be a big change. Perhaps a change that needs to be welcomed as a sign that the global economy has bottomed.
Eurozone GDP for Q3 (all figures preliminary) came in ahead of estimates. On an annualized basis, the bloc’s economic growth came in at 1.1% from 1.2% seen in the previous readout while meeting +1.1% expectations.
“Supply chains are shifting away from China,mainly to Asian emerging markets. We count nearly 70 companies that have said they are or are considering moving production away from China since the trade war heated up. Vietnam appears to be the big winner so far, aided by competitive wages, exports similar to China's, low taxes and relative ease of doing business. Interestingly, this shift began well before Trump as China’s competitive edge eroded; the trade war just accelerated it.”
China's October Manufacturing PMI rolls in at 49.3, below the 49.9 forecast and the September 49.8 result. Non- Manufacturing PMI was reported at 52.8 falling below the September read of 53.7.
The Caixin headline seasonally adjusted Purchasing Managers’ Index, a composite indicator designed to provide a single figure snapshot of operating conditions in the manufacturing economy. rose from 51.4 in September to 51.7 in October. The index has now signaled an improvement in operating conditions for three months running, with the latest improvement the strongest seen since February 2017.
Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group;
“The Caixin China General Manufacturing PMI stood at 51.7 in October, up from 51.4 in the previous month and marking the fastest pace of expansion since February 2017. This pointed to a continued improvement in the manufacturing industry. Both domestic and foreign demand improved substantially. The sub index for new orders stayed in positive territory and rose to the highest level since January 2013. The gauge for new export orders returned to expansionary territory and reached the highest point since February 2018, due likely to the U.S.’ move to exempt more than 400 types of Chinese products from additional tariffs.”
“Production growth accelerated further. The output sub index stayed in positive territory and rose for the fourth straight month, hitting the highest level since December 2016. As new orders grew at a faster pace in October, the measure for stocks of finished goods dipped into contraction territory.”
“The labor market contracted further. The employment sub index dropped to the lowest level in 13 months. As China’s demographic dividend is fading, there has been pressure on growth of the labor force. The sub index for suppliers’ delivery times fell further into negative territory. Delivery delays to some extent implied bottlenecks in production capacity and stocks of finished goods, and also reflected manufacturers’ subdued confidence. The sub index for stocks of purchased items edged slightly lower, indicating a cautious attitude towards replenishing inventories. Both the measures for input costs and output charges dipped slightly, suggesting that prices of industrial products were stable in general.”
Japan's September Industrial Production increased by 1.4% month over month, and reversed the August decline of -1.2%.
The headline Jibun Bank Japan Manufacturing Purchasing Managers’ Index, a composite single-figure indicator of manufacturing performance, fell to 48.4 in October, from 48.9 in September, its lowest mark in nearly three-and-a-half years and indicative of a stronger downturn in Japan's goods-producing economy.
Joe Hayes, Economist at IHS Markit;
"Worrying signs for Japanese manufacturers appeared at the start of the fourth quarter, with PMI data showing conditions deteriorating at the sharpest rate for almost three-and-a-half years. Even more concerning was the fact that new orders, a key forward-looking component of the survey, was the primary reason underpinning this marked decline.”
"Japanese goods producers reported the sharpest fall in demand since May 2016, with sector data showing the accelerated drop was broad-based across consumer, intermediate and investment goods. Although the impact of the typhoon will have temporarily interrupted factory operations in October, panelists reported unfavorable underlying conditions across both domestic and external markets. As such, downside risks to Japan's manufacturing economy are clearly excessive. With weak regional growth across Asia and signs of fragility within the domestic economy, it is difficult to see any respite coming in the near-term.
IHS Markit India Manufacturing PMI fell from 51.4 in September to a two-year low of 50.6 in October, highlighting only a marginal improvement in the health of the manufacturing industry. Growth was restored in capital goods and softened in the consumer goods category, while a quicker contraction was registered at intermediate goods makers.
Pollyanna de Lima, Principal Economist at IHS Markit;
”PMI data for October showed a continuation of manufacturing sector weakness in India, with sales growth softening to the slowest in two years. Weakening demand had a domino effect in the manufacturing industry, knocking down rates of increase in production, employment and business sentiment. With quantities of purchases contracting for the third month in a row, input costs fell for the first time in over four years during October.”
"Following five successive cuts to India's benchmark rate, and an apparent lag in how quickly this feeds through to consumers, the impending lowering of commercial lending rates could potentially revive private consumption and help to shift growth higher as we approach the year end.”
"Goods producers may then be encouraged to resume investments and create jobs, which combined with cuts to corporate taxes could bode well for the outlook."
The deadline had been pushed back once before this year, and now we have a new deadline, Jan. 31, 2020. Eventually there will be a decision to leave or stay, but for now investors have pushed this issue to the background.
The headline seasonally adjusted UK IHS Markit/CIPS Purchasing Managers’ Index rose to 49.6 in October, up for the second successive month but remaining below the neutral 50.0 mark separating expansion from contraction.
Rob Dobson, Director at IHS Markit;
“The manufacturing downturn continued at the start of the final quarter as uncertainties surrounding Brexit, the economic outlook and domestic politics all took their toll. However, the underlying picture looks even darker than even these disappointing headline numbers suggest, as output and new orders fell despite short term boosts from stock-building activity in advance of the October 31st Brexit deadline, which included a rise in exports as clients in the EU sought to mitigate supply risk.”
“The high degree of uncertainty is hitting two areas of the manufacturing economy especially hard. The first is the trend in employment, as job losses resulting from disappointing sales are exacerbated by manufacturers implementing hiring freezes until the outlook clears. The second is the investment goods industry, where output and new orders are falling sharply as clients postpone capital spending plans.”
“With a further Brexit extension confirmed and the prospect of a December general election, it looks as if the specter of uncertainty will cast its shadow over manufacturing for the remainder of 2019.”
The "bottom line" beat rate is surging while the "top line" remains flat.
While beat rates have been relatively strong this season, CEO’s remain influenced by the trade narrative and have kept forward guidance decidedly more negative.
As shown above, the guidance spread, the percentage of companies raising guidance minus lowering guidance currently stands at –4.3 percentage points. This will be important to keep an eye on as the season progresses.
Perhaps investors have finally caught on. The weak guidance hasn’t deterred investors. Of the ~500 stocks that have reported so far this season, the average stock has gained 0.64% on its earnings reaction day.
That’s much better than the negative one day price reactions we saw the last two earnings seasons.
FactSet Research weekly update:
For Q3 2019:
With 71% of the companies in the S&P 500 reporting actual results, 76% of S&P 500 companies have reported a positive EPS surprise and 61% of S&P 500 companies have reported a positive revenue surprise.
The blended earnings decline for the S&P 500 is -2.7%. If -2.7% is the actual decline for the quarter, it will mark the first time the index has reported three straight quarters of year over year earnings declines since Q4 2015 through Q2 2016.
The forward 12-month P/E ratio for the S&P 500 is 17.2. This P/E ratio is above the 5-year average (16.6) and above the 10-year average (14.9).
The Political Scene
Continuing to interpret the trade issue incorrectly has cost some investors a bundle. What I am referring to is the negative trade mindset that is pervasive, and that may slowly start to change. Progress in the trade negotiations as China Says Part of Phase 1 Trade Deal Text ‘Basically Completed’. That was updated on Friday as China and the U.S. reached a consensus in principle.
President Trump’s language regarding trade agreement “phases” or what I have referred to as mini deals seemed to come “out of the blue” given what seemed to be “all or nothing” talk. The sudden change in negotiating tactics is likely due to economic growth concerns and the impeachment inquiry, both of which are negatively impacting his poll numbers and may hamper his reelection prospects. This change was expected and the obvious thing to do.
President Xi is facing his own pressures, as China’s 6% 3Q GDP growth marked the lowest quarterly economic growth rate since their records began in 1992. Any negotiations that lead to a truce or indefinite postponement of the tariffs could put both countries in the “win column”.
The House impeachment investigation is expected to enter the next public facing phase in the next several weeks. Polls are beginning to indicate growing public support for the impeachment investigation, and will be a factor to watch to gauge whether cracks begin to widen in Republican support for the President.
Voting along party lines, the House voted to approve a resolution establishing the procedures for the impeachment inquiry's next phase. The vote was 232 to 196, with two Democrats voting against passage. No Republicans voted for impeachment. The resolution lays out the framework for public hearings and eventual proceedings in the Judiciary Committee.
Given the sheer amount of unknowns, the potential for misinformation, and the partisan slant to the proceedings, it may be best not to use any of the rhetoric on this issue to make investment decisions at this time.
FOMC cut rates 25 basis points as widely expected, lowering the policy band to 1.50% to 1.75%. This is a third straight quarter point reduction. The big change in the statement was the removal of "act as appropriate," while the Fed now says it will "assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation target" as it determiners the timing and size of future adjustments.
On the economy the statement was close to September's, and sees a strong labor market and moderate growth in the economy, with household spending rising at a strong pace, while business fixed investment and exports remain weak. The Fed's statement on assessing the outlook gives policymakers the optionality ahead, with no commitment to act again later this year.
Those that suffer from "Fed Obsessed Syndrome", an affliction that has no known cure, will now toss and turn over not seeing the word “appropriate” in the announcement. We will watch them now as they sit in a state of anxiety until the next Fed meeting.
The 3-month/10-year Treasury curve inverted on May 23rd, and other than a brief one day change, that curve remained inverted until October 10th. The recession mob had to wait for quite some time, but the 2/10 Treasury Yield Curve inverted on August 27th. That inversion lasted for three days.
For some, that means the countdown clock has started for a recession and "the" cycle peak in the S&P 500. That crowd may be disappointed. None of these yield curves are inverted today.
The 2-10 spread started the year at 16 basis points; it stands at 17 basis points today.
“This year’s market is a “Bearish Bull”. Despite healthy double digit advances in the major indexes and the S&P residing near a record high, investor sentiment has remained as fearful as it’s been 90% of the time over the past 30 years, with defensive investments the leaders across all asset classes.”
Another way to put it, the most hated Bull market in history rolls on.
Still not convinced the investment population is bearish? With U.S.equities making new all time highs, and global equities on the cusp of 52 week highs, Barron’s reports bearish sentiment in its semi-annual “Big Money Poll” rose to the highest level in more than 20 years.
Just one day after the S&P 500 hit another all-time high, the October report on Consumer Confidence showed that there are still more U.S. consumers who are bearish on the U.S. stock market than bullish. This has occurred only eight other times.
“ In the past hen this occurs, six months later, the S&P 500 averaged a gain of 6.48% (median: 7.50%) with gains in all but one period, while one year later, the S&P 500 averaged a gain of 14.15% (median: 14.27%). When the public views a new high in the market with skepticism, it usually means more gains are in the cards."
The weekly inventory report showed inventories increased by 5.7 million barrels from the previous week. At 438.9 million barrels, U.S. crude oil inventories are about 1% above the five year average for this time of year. Total motor gasoline inventories decreased by 3.0 million barrels last week and are about 2% above the five year average for this time of year.
As refinery throughput is down substantially due to seasonal patterns, non-gasoline product stockpiles continue to experience large draw downs.
A volatile trading week for WTI. When the dust cleared, crude oil lost $0.50 for the week closing at $56.13.
“Crude oil futures contracts held short by hedge funds and commodity trading advisers have roughly tripled in the past month, marking only the sixth time since the 2014 crash that short positions make up more than 35% of futures contracts held by these market participants.”
“ However, unlike most previous cases in which the fast money has built up such a sizable short position, the underlying fundamental data this time has not deteriorated. In other words, inventories, physical markets, etc., remain healthy and do not support the bearish position these traders have built.”
If you are a contrarian, you might want to get ready for a rally in WTI.
The Technical Picture
A nice move for the S&P 500 index, and a clear break of resistance at the old high of 3,025. The more time and distance the index puts between the old high, the stronger this move will be.
Former resistance at S&P 3025 now becomes the first level of support, and that level held on a closing basis this week. That signals the short term rally that took the index to new highs is still viable. The index is overbought, so sideways action or a small pullback would not be out of the ordinary.
No need to guess what may occur; instead it will be important to concentrate on the short-term pivots that are meaningful. However, the Long Term view, the view 30,000 feet, is the only way to make successful decisions. These details are available in my daily updates to subscribers.
Short term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short term view. These views contain a lot of noise, and will lead an investor into whipsaw action that tends to detract from overall performance.
Surprise! The NASDAQ composite joins the S&P and the Nasdaq 100 posting a new high on Friday. That wasn't supposed to happen. In one of the more absurd forecasts I have ever seen, Morgan Stanley says the "under" performance in growth stocks is just beginning, as the "overvalued" defensive areas are still being touted as the place to be.
Continuing with absurdity, I do remember being called out for questioning a stock market call made by Jeffrey Gundlach earlier this year, where he claimed the S&P was in a Bear market. At the time I believed it was an agenda ridden forecast that had no basis in fact, and did not mince words.
I wonder if anyone wishes to tell me how wrong I was to question Mr. Gundlach and his "call" today.
With this tweet, Ben Carlson reminds us how silly some of the commentary regarding the Fed’s ability to navigate the economic scene has been.
Listening to the "Fed obsessed" usually results in an investor taking their eye off the "trend".
Individual Stocks and Sectors
“They can’t innovate anymore. The trade issues will hurt their international business, no one will buy a phone with that price tag.”
Commentary that investors have heard for a while now. Apple continues to impress as it blows away the skeptic's view of the situation. The company just reported its highest ever revenue numbers. The stock is up 60+% for the year.
More interesting commentary from the analyst world.
“The company is under attack, they can’t be trusted with data, people will leave their platform.”
Facebook silences the naysayers as user metrics improved across the board this quarter. Advertisers are not leaving their platform, and profits are growing.
Full disclosure; Both of these stocks are CORE holdings in my portfolio.
The semiconductor sector was supposed to be an under performing sector as global recession worries were a big overhang. Since this call to sell semiconductors in August 2018 the Philadelphia semiconductor index is up 25%, posting a new all time high this week. While the majority focuses on Industrials, the Semiconductor sector has been signaling this market breakout for months now. It's not just about watching the "trend" its about watching the "right trend".
The opening quote from President Clinton is valuable advice, especially when we realize the difficult times we live in. It is easy to get distracted by headlines; not only with what is happening in politics but also in business. We inherently forget to check the underlying trend lines. Therein lies the platform for failure.
These days people are bombarded with the notion that things are so bad we have to tax the wealthy, regulate just about everything in our lives, tell us the internet applications that have made our lives easier are no good for us, break up big tech, and impeach a president. The headlines might make it feel like our lives are progressively getting worse, but as Mr. Clinton once said, the trend lines tell a different story.
All time highs were achieved this past week. There was a time when new highs were celebrated, today they are questioned. Investors can now get prepared for the commentary that will tell us;
“Be wary of new highs, indices shouldn't be at these levels, and there will be a large pullback in equities on the horizon.”
Then there are the analysts that proclaim there isn’t much left to this rally, all bullishness needs to be tempered now. Fact is, one should have been bullish when the S&P was at 2700 in June instead of taking on the perma cautious stance. Today’s skeptical commentary is nothing more than a cop out for being incorrect.
The naysayers recite the same tune week after week. The stock market has gone nowhere in the last 18 months. OK, i'll give them that, but if someone used that to take on a bearish tilt to their positioning, they made a mistake. The Bulls recite the other statistic which says the S&P is up by 46% since the day before Election Day 2016. That is good news for Bulls and bad news for the Bears.
Maintaining a Bullish stance has been part of the strategy offered during the market’s climb. There was no panic selling in 2015/2016, and there were no sell signals given here in the 4th quarter of 2018. Far too many have allowed themselves to be “tricked”. Many refused to recognize, let alone accept the “treat”. They simply allowed their personal political beliefs to steer them in the wrong direction when it comes to the stock market and other major investment and business decisions.
And there were numerous "treats" offered. ALL of them implied stocks were going higher. Instead many convinced themselves that the economy would not survive the daily stresses of a Trump presidency. You see, as it has turned out, running around complaining about a tweet, was a total waste of time. Yet it was the way for many to express themselves, and their beliefs. Here we are nearly three years after the election and the stock market is sitting at another all time high, and the economy is performing far better than much of the developed world. That is not a political statement, that is a simple fact. Just like it was in the Clinton and Obama years where it paid to watch the trends and eliminate the “noise”.
From the political environment to the fundamental backdrop, the cautious crowd wants to scream that THEY are correct. We hear the same people moaning the same words;
“The fundamental data hasn’t been that good, treasuries shouldn't be rallying, the Fed doesn’t know what they are doing, the bond market is warning us, the political scene is frightening, and stocks shouldn't be at all time highs.
That is the story line that has been prevalent for a while now. During this entire year there has been a negative mindset that ran like wildfire throughout the mainstream and financial media. It has ALL been presented with an agenda and has influenced the majority. This commentary is but ONE example of the incessant warning that became part of an investors everyday life;
“Trade tariffs are going to destroy the economy and the stock market.”
Anyone that listened to that agenda, remained ultra cautious and raised a lot of cash, was "tricked". It's as clear as can be now. The idea was to recognize the "trick" while it was happening, not after it is playing out. I’ve tried shouting a message, yet the naysayers debated that every chance they got. So let me try this again;
“Watch the price action”
Far too many chose to sit and “watch” what is NOT important. That left them observing and not participating in a “life changing” event. Life changing for those that stayed the course in this Bull market, not so much for the crowd that listened to the “agenda” or let political ideologies get in their way.
Now that new market highs have been registered, it is time to sit back, relax, and get ready for the mob to tell us how much the S&P will fall now that new highs are in, and how silly it is to be invested in equities.
The S&P is at 3,067. Now please excuse me, I'll get back to watching the "trend" as the "naysayer cycle" continues.
I would also like to take a moment and remind all of the readers of an important issue. In these types of forums readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation. Please keep that in mind when forming your investment strategy.
to all of the readers that contribute to this forum to make these articles a better experience for everyone.
Best of Luck to All !
Were you waiting for the September correction, how about the pullback forecast for October? When the S&P was struggling in August, Savvy Investors were advised to position for new market highs. August 2nd, 2019:
"If it is at all possible, I find myself more bullish today then I was in the first quarter of this year."
Other analysts were telling investors to "lighten up" and sell. We offer a stable no nonsense approach that eliminates emotion, and avoids the short-term whipsaws that destroys portfolios.
Advance to the next level, consider joining the group led by someone who knows the stock market works.
Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. 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.
Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.
This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me. Of course, it is not suited for everyone, as there are far too many variables. Hopefully it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel more calm, putting them in control.
The opinions rendered here, are just that – opinions – and along with positions can change at any time.
As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die. Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.