Thursday, June 14, 2018

Echoes of late 1990s boom has many veteran market participants wondering if another big stock run is ahead

By DSO at 1:31 PM  , ,  No comments
  • The stock market parallels with the conditions of 20 years ago are hard to miss, according to top investors.
  • A U.S. economy growing nicely at full employment in an unusually long expansion, the Fed is tightening methodically, big growth stocks dominate amid talk of New Era in tech as "disrupted" sectors suffer and a deal boom featuring huge media mergers is rolling.
  • The rhymes between today and the late-'90s are close enough that some veteran market participants like Paul Tudor Jones are singing along.
Facebook CEO Mark Zuckerberg speaks during the F8 Facebook Developers conference on May 1, 2018 in San Jose, California.
Getty Images
Facebook CEO Mark Zuckerberg speaks during the F8 Facebook Developers conference on May 1, 2018 in San Jose, California.
Reminders of the late-1990s are appearing all over Wall Street these days, and not just the return of high-waisted jeans and designer-logo handbags.
The economic and financial-market conditions are drawing comparisons to the later years of the '90s, when good economic times and a technology boom culminated in a powerful bull market that went to stunning extremes before collapsing in early 2000.
No two historical moments match up perfectly, of course. But an array of features of, say, the 1997-to-1999 period are observable today: An unusually long economic expansion that began with tepid growth rates and stubbornly slow employment gains finally start to hum, reaching a phase of almost-monotonous strong performance and essentially full employment. Consumer, small-business and CEO confidence readings today are near the historic highs reached in the late-'90s.
Tech is powering the rally in an ‘uneven market,’ macro expert says
Tech is powering the rally in an ‘uneven market,’ macro expert says  
The Federal Reserve is tightening, but not at a pace that is noticeably restraining capital-markets risk-taking. The Treasury yield curve is rather flat, but long-term yields are still almost half a percentage point above the two-year. Emerging-market stock and bond markets start to wobble under the strain of Fed tightening and dollars shuttling back into the U.S., triggering some global market scares but also keeping the Fed more cautious than it might otherwise be.
A stock market dominated by Big Tech shares riding promises of a glittering digital future hovers near record levels, while a crowded purgatory of stocks of companies deemed "disrupted" struggle. A media merger frenzy gets rolling, featuring an acquisition of Time Warner as its signature bold stroke.
The rhymes between today and the late-'90s are close enough that some veteran market participants are singing along.

Seen this movie before?

Jim Paulsen, strategist at Leuthold Group, produced this chart showing the sharp underperformance of non-tech stocks versus the tech leadership. The pattern is roughly similar though the magnitude of tech domination isn't as extreme now.
Source: Leuthold Group
"Haven't we seen this movie before?" Paulsen asks. "Technology takes over the stock market late in a recovery cycle, seemingly making the bull ageless, pushing portfolios toward a more concentrated new-era exposure, stimulating investor greed bolstered daily by watching a chosen few (FANGs) rise to new heights, and convincing many that tech is really a defensive investment against late-cycle pressures which trouble other investments."
Celebrated hedge-fund trader Paul Tudor Jones in a CNBC interview this week compared today's environment with others such as the U.S. market in 1999, when stocks kept rising even as the Fed tightened — until the Fed finally had to get aggressive and choke off the surge.
Watch CNBC's full interview with Paul Tudor Jones
Watch CNBC's full interview with Paul Tudor Jones  
"I think the stock market also has the ability to go a lot higher at the end of the year. ... I can see things getting crazy particularly at year-end after the midterm elections ... to the upside," Jones said.
Another school of market-cycle analysis looks at the 2008-2009 financial-crisis meltdown as analogous to the 1987 stock-market crash, in terms of collective psychic damage and the effect on risk appetites — even though they differed in magnitude, duration and economic impact. It was a full decade after the '87 crash before the public truly began to embrace a fast-rising stock market, for what that's worth.

Changing the 'rules' for tech

There are perhaps some other, more subtle developments that with the benefit of hindsight reflected an overconfident Wall Street willing to change the rules of the game in the late-'90s.
After avoiding big Nasdaq stocks for years, the keepers of the Dow Jones industrial average succumbed and added Microsoft and Intel to the venerable index on October 1999 — six months before the peak. This year, S&P will reshuffle its sectors to create a new communications-services sector to capture all the Internet stocks now in telecom, consumer discretionary and tech — perhaps feeling the formal tech sector is getting too unwieldy.
And some look back at the passage of Regulation Fair Disclosure in the year 2000, requiring companies to release all material information publicly, and believe the end of quiet massaging of investor expectations caused a jarring uptick in volatility just as a bear market was taking hold. Now we have a budding effort by Warren Buffett and Jamie Dimon to end quarterly public earnings guidance.
With all those parallels to the late-'90s traced out, it's important to point out several crucial differences, which together make the current market seem less overheated and hazardous than, say, 1999.
For one, stocks just aren't up as much and investors' speculative energy is not as wild today. The annualized total return for the S&P 500 over the past five years is 14 percent, and the annual return for the past ten years 10.5 percent. From 1997 to 1999, the trailing 5- and ten-year returns were twice as high.
Buffett: Stocks are not in bubble situation now
Buffett: Stocks are not in bubble situation now  
Speculation? In 1999, there were more than 500 IPOs and their average first-day share-price gain was almost 70 percent. We have nothing like that today.
Valuations today are high, but not as high as back then. The dominance of tech stocks today arguably better reflects the pervasive role of the most powerful tech platforms in the economy and daily life. Back then, most companies were flimsier operations with unproven business models.
As an example, when AOL reached a $200 billion valuation in early 2000 as it agreed to merge with Time Warner, it had a mere 20 million subscribers and no real earnings. Facebook, at a $550 billion market value, has 2 billion users and last year earned $16 billion on $40 billion in revenue.
Even the way the stock market backed off early this year after a relatively brief phase of exuberant upside shows this to be a more orderly, less heedless market than the very end of the '90s.
All of which is to say, if this market cycle is eventually going to become a true rerun of the late-'90s — and there's a good chance it never quite will, in many respects — there is still a good way to go before it gets there.

Tuesday, June 5, 2018

2 Ways To Handle Volatility In The Stock Market

By DSO at 9:03 PM    No comments
NEW YORK, NY - MAY 31: Traders work on the floor of the New York Stock Exchange (NYSE) on May 31, 2018 in New York City. With news of the U.S. decision to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico, the Dow Jones industrial average fell over 250 points today. (Photo by Spencer Platt/Getty Images)

After a very quiet few years on Wall Street, volatility returned with a vengeance in the first half of 2018. In February, the popular indices fell into "correction" territory defined by a 10% pullback from a recent high. Thankfully, the correction was shallow in both size (small % decline) and scope (did not last long). After testing important support a few times (200 day moving average line), the market stabilized in March and April and began a new uptrend.

Over the last few weeks, the small-cap Russell 2000 hit a fresh record high and in early June, the tech-heavy Nasdaq composite is once again flirting with new record highs. History shows us that 80% of pullbacks and corrections do not turn into a bear market, here are two ways successful investors handle volatility in the stock market.

Embrace Volatility, Don't Fear It:

Successful investors know that volatility is part of the process on Wall Street. Instead of fearing volatility, they have learned to plan for it and actually embrace it. One of the major differences between novice investors and seasoned pros is how they navigate volatile markets. The key is to use the power of anticipation. If you study market history, volatility is part of the terrain. So why fear something when you know it is going to happen? In fact, some argue that volatility is actually healthy for the market. I think about volatility the same way I do traffic. If someone drives to work in rush hour traffic, there is no point to be upset and frustrated when you are in traffic. Instead, embrace it and plan for it. Either way, it is going to happen, so I might as well choose to enjoy the process and be happy. Because it is an internal shift that makes a world of a difference to you but does not change the fact that volatility will occur.


I spoke to Chandon M. Simonis, Senior Portfolio Manager and Partner at Parkview Partners Capital Management, a wealth management firm in Columbus, Ohio with $600 million in assets under management he reiterated the importance of long-term investing. "Investing is a process over time," he said. "Do not get caught up in the short-term volatility and corrections as they are just a moment in time and tend to be historically short-lived versus constructive fundamentally driven positive markets." Chandon goes on to reinforce, “that one must be careful not to allow market volatility to cause short-term market timing decisions, which are usually emotionally driven, and can lead to adverse returns which may be difficult to recoup in the long-term.”

Look At The Forest, Not The Trees:

The next big point successful investors do is align themselves with the long-term trend. Just about every major piece of research shows that trying to trade on a daily or intra-day basis is a fools game and yields to sub-par performance. Successful long-term investors know that the market has a powerful upward bias and align themselves accordingly. Trying to trade every day is akin to looking at the leaves on one tree (that day's action), not the forest.

I also spoke to Michael Landsberg, Director at Homrich Berg, an independent Atlanta-based wealth management firm with over $5.6 billion in client assets and he said, "Embracing volatility can allow discerning investors to potentially pick up extra value through deploying capital when prices are temporarily depressed." He went on to say, "For long-term investors, volatility should not be feared because the day-to-day fluctuations of the market generally have little effect on a comprehensive financial plan. If fundamentals are strong and a company is well run, the typical daily “noise” from news outlets should not cause steadfast investors to abandon ship."

Bottom Line:

Volatility is a normal and healthy part of investing. Just about every asset class in the world has some level of volatility. So successful investors have learned to embrace volatility and align themselves with the long-term trend in the market. So now that markets have recovered it is a good time to sit down and plan what you will do the next time volatility picks up. Because it is just a matter of when, not if.


Adam Sarhan Contributor

 705 views #MarketMoves

Source : https://www.forbes.com/sites/adamsarhan/2018/06/05/2-ways-to-handle-volatility-in-the-stock-market/

Saturday, June 2, 2018

Opinion: So much winning: all the latest signs of the bubble that will crush this economic expansion

By DSO at 7:03 AM    No comments
It’s in GDP, the housing market and, yes, President Trump
Friday’s well-received jobs report aside, this hasn’t been a good week for the economy. After 107 months, we are beginning to see the imbalance — in popular-speak, the bubble — that will eventually end this expansion. And its name is Donald J. Trump.
You see it in Wednesday’s report on gross domestic product that showed first-quarter pretax corporate profits declining, even as Trump’s tax cuts papered over the erosion.
You can see it in the weak consumer-spending growth in the first quarter, also reported Wednesday, and the not-great housing news (lower pending sales, and big price gains even amid weak volumes, because sellers are simply sitting out trade-up moves, forcing buyers to bid up scarce inventory) that came out Tuesday and Thursday.
You see it in market wobbles early in the week prompted by worries about Italy maybe trying to wriggle out of its unmanageable debt load — a reminder that if a financial crisis comes out of Europe, just as one came from Asia in 1998 and from the U.S. housing market a decade ago, the U.S. president and his team haven’t shown even basic competence, let alone the ability to deal anything like a global response to a global problem.
Or in the fact that, if you look, this report delivered fewer jobs than 25 of the 48 issued in Barack Obama’s second term. Yet, predictable as Seattle rain, Trump took to Twitter and declared “RECORD JOBS DAY!...America is WINNING BIG under President Trump!”
We are sorry, we are unable to load this video.
And you see it in the president himself — more every day.
In the past week, Trump has decided to play trade warrior, slapping tariffs on steel and aluminum made by allies in Europe and Canada — all taken vainly in the name of national security. (What, was Justin Trudeau going to drop ingots on Trump’s head, Road Runner-style?). Forget for a moment that steel imports in general are way below 2014 levels, though they rose in the first year of Trump’s term, or that total steel imports were only $29 billion for all of last year, while exports rose 15% in the first nine months of 2017 to $10.1 billion.
Putting it charitably, Trump is ticking off allies — Trudeau’s contempt was palpable as he pointed out the U.S. has a trade surplus in steel with Canada and said the move lacked “common sense,” while French President Emmanuel Macron warned Trump that “economic nationalism leads to war” — over tariffs on about $20 billion, or one-tenth of 1% of the U.S. economy.
Trade was always the heart of economists’ case that Trump would cause a recession after the effects of his tax cuts wore off. If Thursday was kabuki theater because it affected only one smallish (if culturally potent) industry, the main act may still be coming.
“If all of the announced tariffs are actually implemented, it will [cut] 0.2% from real GDP growth. If that’s all it is, it won’t cause much of a slowdown,” Moody’s Analytics chief economist Mark Zandi said. “However, if the trade war is back on, and the Trump Administration slaps 25% tariffs on all Chinese and Mexican exports to the U.S., as [Trump] promised during the campaign, then yes, it would do serious economic damage. NAFTA would likely fall apart, and financial markets would begin discounting much worse. A recession would be a real possibility.”
Anyone think Trump’s odd behavior isn’t accelerating? That this doesn’t raise the odds that he will do things he wants to do, like bag NAFTA? Anyone think that won’t have a price at some point?
Consider how he’s spent the last few days.
He welcomed parents of kids murdered in the Houston-area school shooting that took eight lives, one of whom said Trump’s repetition and harping on arming teachers to stop school massacres “was like talking to a toddler.” He pardoned Dinesh D’Souza, longtime promoter of the lie that Barack Obama was a Kenyan-born terrorist sympathizer and a conscious violator of campaign-finance laws who the day before the pardon was on Twitter promoting the “idea” that George Soros, then a small Jewish child in Hungary, was somehow the Boss Baby helping Hitler run the Holocaust.
Or consider Bloomberg’s scoop that Trump wants to order utility grid managers to buy more power from financially failing coal plants — despite the fact that coal has been losing market share for years to natural gas that is cleaner and costs less because, you know, capitalists innovated and changed the rules, which Trump would appreciate if he were a real capitalist, instead of the crony kind. Whatever coal’s culture-war relevance is to Trump, the industry barely employs 50,000 people, the population of the megalopolis we call Parsippany, N.J.
He also took time to tweet, in all caps, “FAIR TRADE!”
And to tweet a lot about Robert Mueller, who is methodically unraveling Trump’s 2016 campaign and a lot about his personal finances, with consequences not yet known.
And Roseanne Barr, Samantha Bee, and why Memorial Day is really about Donald J. Trump.
And to tweet again about the jobs report an hour before it came out, manipulating global markets for a cheap cable-TV thrill because, well, he’s a toddler. (And following up with the lie about setting records. Even though Trump has delivered more jobs in three different monthly reports since last year, while job growth is slowing, not accelerating).
No toddlers here.
Jobs report aside (and notwithstanding a very solid Friday print on manufacturing sentiment), there are actually a rising number of reasons to fret that the party is nearing an end.
Every expansion ends when something it’s based on rots — commercial real estate in 1990, tech-stock valuations in 2000, the housing bubble in 2007.
One really disturbing piece of the puzzle was a government report saying U.S. birth rates in 2017 were the lowest in 30 years — a sign that young consumers are pessimistic. The Federal Reserve is eager to raise interest rates (in part to offset Trump’s unwise, expansionary fiscal policy, a step Republicans refused to take when the economy needed it), which won’t hurt much right away but will eat away at purchasing power over time. And real wage gains are actually lower than in 2014-2015, in part because rising gasoline prices and tariffs will eat up most of the gains middle-class families get from last year’s tax cut.
You have less confident consumers (watch what they do, like not trade up their homes, rather than what they say in confidence surveys), whose debt burden will rise with rate hikes, and whose real wage gains are shrinking as job growth slows. That’s all before Trump gives in to his trade id. Stock-market gains Friday mean nothing — the Dow Jones Industrial Average DJIA, +0.90%   hasn’t made up its losses after Thursday’s trade announcement and is down for the week. The S&P 500 SPX, +1.08% returned 16% in 2006, remember.
Every expansion ends when something it’s based on rots — commercial real estate in 1990, tech-stock valuations in 2000, the housing bubble in 2007. The thing rotting now is confidence in the steadiness of the man in charge, an element of the post-2008 expansion we should appreciate more.
Trade policy is a symptom of the disease, fewer babies and housing sales signs of its effects. And Trump’s public spinning, with a staff recently stripped of nearly all of its adults, is a sign that it’s likely to get a lot worse.

The Most Important Trends in the U.S. Stock Market Now

By DSO at 6:52 AM    No comments
Even if you’re a day trader or short-term swing trader, I think it’s a huge advantage to understand the direction of the underlying trends. For me, who specifically looks out weeks and months, trying to make money this quarter, my monthly candlestick chart review is essential. I can’t begin to tell you how much this has helped me avoid blindly calling tops or bottom fishing in never ending downtrends. It most certainly helps us err in the direction of the underlying trends which, of course, increases our probabilities of success.
[I teach investors how to identify trends using Technical Analysis on my course on the Investopedia Academy, if you want to learn more.]
Here is the S&P 500 pretty much right in the middle between key support near 2400 and our upside objectives just below 3000. There is nothing in this chart suggesting we are at a major inflection point or completing any kind of massive top. To me, this is just an uptrend and prices are on their way to hit their targets, which is perfectly normal:

The Nasdaq Composite, on the other hand, reached its upside objective of 7600 in January and has been consolidating below that level ever since. I don’t see anything out of the ordinary here at all, and appears to be a consolidating near a logical level. The question becomes: Was that it? Was that the move, and now we reverse from this key extension target? Or should we instead focus on the fact that the Nasdaq just went out at an all-time monthly closing high, which is a characteristic of an uptrend, not a downtrend? Holding above 7600 would signal to us that the next leg higher in Nasdaq is ready to begin (also note: the Nasdaq 100  QQQ went out an all-time monthly closing high as well)
Here is the Dow Jones Transportation Average consolidating its 2017 gains just below the upside objective near 11,000. We consider this to be perfectly normal behavior, and a consolidation near a logical level. There is no evidence here of a major top, just a breather after reaching its target. Prices holding above 11,000 would signal to us that Transports are ready to begin their next leg higher:
Moving on from the largest of the largest large-caps, the Mid-cap 400 continues to consolidate gains this year above support, not below resistance like some of its other larger-cap counterparts. We’ve been looking at mid-caps as a great indicator of trend, noting that a break below 325 could prove catastrophic for the index, and in turn stocks as an asset class. Not only has this support held, but we are pressing up against new all-time highs which I consider to be normal behavior within an ongoing uptrend. If we’re above 325, we want to stay long MDY with a target above 480:
In the tiniest of companies, “riskier” some would add, we are blowing out of this consolidation and already ripping to new all-time highs. This is the strongest of all the U.S. Indexes which suggests to me this is evidence of risk appetite, not risk aversion. We want to stay long Micro-caps $IWC if we’re above 100 with a target up near 127:
When I look through all of the U.S. Indexes, I am not seeing major tops. People are obsessed with comparing the current market environment to 2007. During that period we were seeing deterioration in market breadth and major tops forming all over the place, not just in the major indexes but in the biggest stocks too. We are simply not seeing that today. Most indexes are making new all-time highs, while others are consolidating gains near logical levels.
The weight-of-the-evidence is suggesting that we are in a bull market in stocks. Historically, in bull markets, we want to be buying stocks, not selling them. Read more of my analysis here.
JC