Bull Market Vs. China, Puerto Rico And Greece

Jul. 10, 2015 7:41 AM ETV, DIS, MA, SBUX, HAR, GM
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In my mind, stocks have been performing relatively well, given all the macro news that surrounds it. Investors know that Greece doesn't directly impact the U.S. economy, nor does China's stock market.

That's why the latter has slid more than 30% in the past month, yet has hardly impacted stocks until the past few sessions. The concern with Greece is that it could adversely impact Europe, which would then end up impacting U.S. earnings from multinational companies.

This isn't to say that these two events - plus Puerto Rico's blossoming debt burden - won't hurt stocks. Ultimately, they already have with stocks down around 4% from the highs.

But that's where I find the silver lining. The S&P 500 continues to chop up and down and volatility has shot higher. The CBOE Volatility Index is at levels not seen since February. Despite all of the volatility and macro headaches, stocks are just 4% off all-time highs.

That speaks pretty positively to me. Cris Sheridan over at Financial Sense recently published a piece about a potential market top. I think pieces like this are worth noting, because if nothing else, it keeps us in check and somewhat prevents us from becoming too euphoric.

I'm one of those people where I like to hear and see all angles of an argument and then decide. Whereas some people will be bullish or bearish and refuse to listen to anything else. I'm bullish on this market, but I take Sheridan's information and put it in the back of my mind.

Maybe it prevents me from buying too much stock, or maybe it has me think twice about when to buy stocks.

My biggest problem with comparisons back to 2000 and 2007 - be it NYSE margin debt, buyback amounts, valuations, etc. - is that there isn't a comparable crisis on hand.

In 2000 we had the Nasdaq trading with an insane valuation, something that made zero sense (in hindsight). In 2007, we had total financial chaos, as too-big-to-fail institution where…failing.

So that brings me to today: The this or the that might be comparable and like in Sheridan's long-term chart, it has similar patterns to a topping market. But that doesn't mean an angry bear is lurking around the corner.

Not to cover all the bases necessarily, but that doesn't mean an a bear market isn't lurking, i just think it's improbable. The economic data is good, but not great, we still have low interest rates and the Fed seems unlikely move any time soon, and the U.S. dollar is steady.

Bull markets need a catalyst to end, they don't simply die just because someone decided it was time.

Maybe China's stock market is foretelling that the Chinese economy is crashing. Or maybe, because Chinese stocks have rallied such a crazy amount, this pullback is actually good.

Did you know, for all the fuss that is being made about Chinese stocks, that the Shanghai Composite, which fell 30% from its June highs, is still up 80% in the past year? Did you know that the index is still positive on the year, up 14.5%?

Up 14.5% is a banner year in the U.S., and all we can talk about is how that market is collapsing.

I'll be the first to admit, a big downturn in another big economy - like Europe or China - can absolutely have a spillover effect on U.S. stocks and the economy. But so far, it's nothing but speculation. Auto sales and housing data remains strong, along with all the other catalysts listed above.

There's no problem with lightening your exposure to stocks - after all, we are still 4% from the highs, not a bad spot to sell - and there's no issue with being cautious. There could easily be a 5% to 10% correction in the cards, because markets trade on emotion.

I'm just not ready to throw in the towel and declare this bull to be dead. I'm sticking with the winners from Future Blue Chips picks: Starbucks SBUX, Disney DIS, MasterCard MA and Visa V.

I also see great growth at a reasonable valuation from Harman HAR and a deeply discounted, attractive risk/reward play in General Motors GM.

Disclosure: I am/we are long V, DIS, MA, SBUX, HAR, GM.

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