We have seen the S&P 500 hit resistance at 1900 a few times and everyone wonders why this barrier seems impassible.
Thesis for S&P 500
Prior to the financial crisis we saw corporate CEO's sign up for mindless mergers, derivatives and endless corporate synergies for fat paychecks; corporate boards ignored all forms of risk management while being boarded and plundered by raiders. Alas we are here at this level of largess again today with the M&A market on fire yet revenues have been stagnant.
Employees and investors were massively traumatized in the great recession yet executives are still enjoying the fruit of their lack of labor. Multi-million dollar personalized packages for being part of a wall-street engineered buyout. Was a single executive thrown in jail for robbing their piggy bank? Nope. Did boards learn? Nope. Warren Buffet would only abstain in a vote on a bad idea… where is the governance? Where is the beef?
For the last few quarters most companies have milked the cow dry and now with newfound funds in hand it's time for another round of M&A monopoly where investors lose while execs cash in their chips. Look to short any company post merger as the merger is a perfect smoke screen for incompetence. The fed bailed them out these execs last time, this time they won't be so lucky.
Revenue & EPS Outlook
I suggest following Larry Fink and Bill Gross and avoiding long positions in any company in the land of leverage as it will surely end poorly. Let's face it once a buyout happens a CEO has plenty of years to show earnings and collect a fat check. What's easier - real revenue and earnings now or a smoke screen to cover up for one's inability to grow a business?