Archives for April 2019

GDP Blows Out. Stocks Don’t React.

It seems like after a few frustrating weeks with the server migration, the blog is back online with all content restored. If you see anything that is  broken or clearly missing, please let me know. Thanks for your patience!

On Friday, the government released the first look at Q1 GDP and it blew away expectations, surging more than 3% when some “experts” were forecasting 0% growth and many were below 2%. Given the magnitude of the Q4 stock market decline and what has become traditional Q1 economic weakness, I thought GDP would be lucky to see 2% in Q1. In this case, I was happily wrong.

When I posted comments on Facebook about the GDP report, there were a few people who couldn’t wait to disavow the report as the economy was growing in the “wrong” areas and that I was “cherry picking” data to only highlight the good news. Additionally, I was accused of not looking at data impartially because I had some political agenda, if that’s even possible. Anyway, 30 years in the business, I have ALWAYS called it like I saw it, whether people agreed to not. And that’s exactly what I will do going forward. I made no bones about what I thought was a tectonic shift after the 2016 elections where the government would focus on pro-growth policies. I thought it would be very bullish for the economy and markets and I still do.

Interestingly, stocks did not react all that positively to the GDP surge. I have always said that what matters most is how markets react to news, not what the actual news is. In this case, it certainly looks like the market had already priced in better economic growth. Defensive sectors actually behaved better than economically sensitive ones which continued their mild pullback. And just as the masses were all getting so excited, so greedy about crude oil and energy, the sector saw a nasty reversal last week which should continue lower.

Markets may be quiet, but there is much going on beneath the surface. I still like transports and banks for the next leg higher. More on that later.

Glad to be back online.

97 degrees in AZ on Sunday. Rainy and 80 today.

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Sectors Strengthening. Buy the Pullback

First, I want to apologize for my inconsistent posting lately. We have been trying to migrate to a new and upgraded WordPress server at Godaddy and that has taken a lot longer than I thought. At first I didn’t realize that I couldn’t post new content until everything was migrated over and then I had to have Godaddy migrate everything over all over again. So, I am in limbo. Sorry about that.

Thankfully, the markets have been very quiet lately with a mild drift to the upside or downside for the major indices. Regardless, as I have written about all year, fresh all-time highs remain my forecast and I am not ruling out Dow 30,000 in the next 11 months.

Semis and discretionary remain the power sectors with the former going somewhat parabolic on the news of Qualcomm finally settling its longstanding feud with Apple over patent infringement. You can see the chart of the semis below. As I wrote about earlier this month when the transports were “percolating”, this key sector has really kicked it up a notch and further strength could really provide fuel for stocks to move higher into summer. Regarding the banks, they have been so beaten down and expectations are so low, they are interesting here, but until price action is more compelling, I will just continue to watch.

You may have noticed that the healthcare sector has been decimated lately as Bernie Sanders’ poll numbers have risen and talks of Medicare for all have been all over the news. While this issue isn’t going away anytime soon, the sector is presenting itself with a short-term trading opportunity right here and now. When I did a deep dive into the stocks, there were certainly a few I liked better than others and I will try to carve out some to discuss later this week.

The stock market bulls continue to do absolutely nothing wrong. Stocks look a tad tired, but that’s about it. Mild and modest pullbacks can be expected at any time and for any reason. However, until proven otherwise, all weakness is a buying opportunity.

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Still Bullish. Junk Bonds & Taxes

Stocks have definitely been quiet of late although that’s from a bull’s perspective from the inside looking out. There has been a very slight drift higher. From a bear’s perspective from the outside looking in, it must be painful first watching stocks relentlessly melt up and then continue to grind higher day after day after day. These types of markets wear on anyone holding cash waiting to invest. From my perspective, I have tried to do my best not to screw up my bullish outlook.

Looking at the major indices, it’s hard to make a seriously negative argument. Sure, I can poke some holes, but nothing significant. Of the four key sectors, the semis and discretionary continue to rock. Transports look like they want to pullback and then explode higher while the banks just frustrate investors. I think if the financials are going to shine, their time is coming this quarter.

While I have written about some recession concerns, the credit markets are not showing any worries. High yield bonds just keep making new highs day after day and week after week. Long before stocks peak and well before the economy peaks, I fully expect the junk bond market to put in a major high. We’re not even seeing junk bonds peak yet, so I have to laugh at all those Chicken Littles out there who yell that the U.S. economy has been in recession for months. That’s just not the case.

If I had to point to one somewhat dumb little supporting fact at just how strong stocks are, look no further than the strength leading up to tax day. While roughly 80-85% of the country saw their taxes fall in 2018, we know that those of us living in high SALT states like CT, NY, NJ, CA, IL & MA may see higher tax bills due today. I would have thought that would have caused a mild pullback to meet those liabilities, but maybe I am either overthinking it too simplistic in my analysis.

Anyway, today is tax day and it’s typically one of the strongest days of the year. I think the logic goes that investors make their IRA contributions at the very last minute and portfolio managers tend to invest that all at once. I actually reasoned that people sold some holdings to cover tax bill and sellers got exhausted before today. Who knows. I’m glad tax day is behind us. I do like seeing all that money in my checking account. That is, until the IRS pulls it and then cashes my April estimated tax check.

 

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Junk Bonds Say Full Steam Ahead

It’s been a fairly quiet few days for stocks after the better than expected employment numbers were released on Friday. The economy created 196,000 new jobs versus the 175,000 expected. As I wrote about then, I was expecting a strong number with a sharply higher revised number for February. While the former happened, the latter certainly didn’t as February was only revised higher from 20,000 to 33,000.

There’s nothing wrong the major indices. All looks fine. The four key sectors are split with semis and discretionary rocking and rolling, but banks struggling and transports looking like they want to burst higher. High yield bonds continue to quietly shock and surprise at all-time highs. I’ve been saying this for years, but certainly of late, bull markets do NOT end with behavior like this. Junk bonds usually top out long before the stock market. Risk on remains in place. The bears are and have been wrong.

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Jobs Friday

Today, we have what is always labeled as the “all important” monthly jobs report. Frankly, given the Fed’s recent 170 degree turn, I don’t think it’s that vital unless the data either completely fall off a cliff or completely spike. Both are unlikely. After February’s unexpectedly weak report, I said that I fully expect a sharp revision higher when March’s report is released in early April as well as a decent report for March. I still feel that is the case. If it turns out that I am wrong and we see more economic weakness than recession may be closer at hand than I thought. That would cause me to rethink a lot of things. Let’s wait and see what happens. I’m sticking with the weight of evidence that points to strength in the jobs market.

Not much has changed on the stocks front. A good employment report should send them higher, but they still look a little tired in the short-term. Bonds should weaken on a good report but they look like they could bounce after that. Gold probably looks the most interesting here as it is set up for an upside move.

That’s it for today. I’m in Tampa with my little guy to watch UCONN take on mighty Notre Dame tonight in the Final Four. It’s going to be a tough one for sure. We don’t seem to fair well against the Fighting Irish on Fridays during Lent.

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Lyft a Bust??? Stocks Soar & Roar

Last week, we ended with the hottest and most anticipated IPO in a very long time. It was one that caused me to dust off my HOT IPO Roadmap and tell you to run for the hills. Lyft came public to all the glory and hoopla of a Ringling Brother circus. And certainly not to my surprise, it fell flat on its face after running above $88. Last I checked, it was sub $70. The pundits were chastising Uber for waiting to be number two. Who’s laughing now? I am sure Uber is learning a valuable lesson!

Regarding the stock market, the bull remain long and strong. However, it seems like a whole new group of bears have just started to notice that an epic rally has been taking place since Christmas. I saw some of the loud and proud bearish pundits who have been pounding the table all year that stocks absolutely had to revisit the Christmas lows and probably break them. These guys were singing the market’s praises as if they had been positive all year. One clown says he used to be a broker before he started blogging and became a pundit. Last time I heard him comment, he was invoking the Logan Act regarding Trump. I don’t know how pundits stay so wrong for so long and then flip a switch, revise history and claim victory. I actually do know. It’s because there’s no accountability.

Anyway, I can spend all day laughing at pundits who refuse to ever admit defeat and just revise history. It’s like those “floor traders” we see on TV who don’t really do anything but walk around the floor socializing and waiting for someone to ask their opinion. Most trading is done electronically. They don’t manage money. They aren’t fiduciaries and frankly, they’re just around for show and entertainment.

Geez, I sound salty and ornery today like my buddy Sam Jones. I’m really not. And I had a great weekend in Albany and Vermont watching basketball, skiing and catching the Mount Snow Spring Brewer’s Festival.

As most of you know, I have no problem admitting I am wrong because it happens pretty much every day as I am reminded at home. “Dad, you’re so wrong”. “Babe, you don’t know what you’re talking about.” While I absolutely can’t stand Duke, I thought there was no way they could lose before the Final Four. Wrong. I thought my UCONN women would have a very tough time on Sunday against Louisville. Wrong. For a few weeks in early January I thought stocks would see a secondary decline into March. Wrong. 30 years in business, I am still learning each and every day. Make a trading error? Fix it ASAP. Don’t wait and hope it goes my way. Cut your losses and take my lumps early and move on. Markets are usually right. Markets also don’t care what price I bought or sold anything at.

Moving on…

Stocks roared out of the gate to begin Q2 as Chinese economic data was unexpectedly robust. The S&P 500 broke out to new highs for 2019 and the highest level since October 10 as you can see below. The NASDAQ 100 looks very similar and equally as strong. Before I continue beating my chest about all-time highs, I want to add that Monday was somewhat emotional for the bulls. As such, I would not be surprised to see some pause to refresh or even a little pullback over the coming week or two. It wouldn’t be one that I would take much action on, but I would be aware. Ultimately, as I have said every week all year, stocks will resolve higher and buying any and all weakness remains the strategy until proven otherwise.

The Dow Industrials are lagging as you can see below, but no longer by a huge margin. The Boeing news has settled down and I expect the Dow to kick it up a notch as Emeril would say. The S&P 400 and Russell 2000 are the two lagging indices that need to step it up sooner than later. If the bears want to point to something concerning, there it is.

All in all, stocks continue to soar ahead as I spelled out in my 2019 Fearless Forecast. All-time highs are coming. Have patience. There will some trading ranges and pullbacks and frustrations along the way. The economy is decelerating but I don’t think recession is here just yet.

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