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Hirst: Framework Is The Most Important Thing

May 07, 2020 10:37 AM ETSPY, DOW
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  • Understanding the framework of the economic crisis is essential because it applies to everyone, unlike trade ideas, which may only be relevant to a smaller percentage of people.
  • The S&P is dominated by big tech stocks whose strength is driving expectation on the market, even as the rest of the index is down.
  • Even winners like Amazon will eventually be sold if the balance sheets of the people who own its stock become impaired enough that they need to raise cash.

Fundamental vs. technical analysis, macro perspective vs. trading viewpoint, news vs. politics – the key to deciding an investing strategy among all of these conflicting messages is to understand the overall framework of the economic crisis, Roger Hirst said during today’s Real Vision Daily Briefing.

Hirst said he’s looking at banks, Europe, and emerging markets for his signals, and that these are all telling us there are still some serious problems in global economies even though many countries are now coming out of lockdown.

He also said that it is difficult to interpret movements in the S&P as a signal for the economy because its performance has been distorted by the Fed’s liquidity injection and because the index is dominated by five big tech stocks whose strength is driving expectation on the market.

“This is basically a five-stock story,” Hirst said. “If you take them out, the rest of the S&P is down 28%.”

Hirst said that these stocks may be winning market share, and these trends may be in place for a long time, but that doesn’t mean they are a one-way ticket to the upside. He pointed out that the people who own these stocks, when they need to raise cash, are going to sell winners like Amazon (AMZN).

“If the balance sheet of people who own Amazon is impaired, they’re going to sell it to raise cash. There’s a limit on the cash that is going to concentrate into these names,” he said.

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