My Yearend Stock Market View
I hate to be the bearer of sad tidings guys.
But I think the choppy, volatile, trendless, trading conditions we are all suffering right now will continue for a few more weeks.
The risk/reward ratio for initiating new positions here is terrible. If you are long and right, you might eke out another two or three points on the S&P 500 (SPY) on the upside.
If you are long and wrong, you could lose 20 points in a heartbeat. Not for me, not for me, not even with your money.
Man! I wish I were still back in the Sahara Desert. There, I only had to worry about scorpions, poisonous snakes, heat stroke, kidnapping by ISIS, and raiding Berber tribesmen.
This is why you?re hearing a steady drumbeat from long time pros, like George Soros and Carl Icahn, turning negative on stocks and buying gold.
This is why I am going into the June 15 Federal Reserve Open Market Committee meeting with 100% cash.
In fact, the Fed meeting could signal the top of the entire recent move in stocks, even if they don?t raise interest rates, which my money is on.
The Dow is up 3,000 points in four months, taking company price earnings multiples close to a 20X multiple, a generational high. Breadth is terrible and volume is falling.
The calendar has flipped from friendly to hostile, as we enter the half year period which sees the greatest amount of stock selling (at least it has for the past 60 years).
It all screams ?Stay away!? to me.
Adding to the multiple weirdnesses of this year is the fact that presidential candidate Donald Trump scared many plungers out of the market at the February lows, predicting an imminent crash of epic proportions. Was that before he offered to give the residents of Berlin and Hiroshima nuclear weapons, or after?
I know it was definitely before he launched the withering personal attacks on the federal judge in his current fraud case.
That left everyone underweight in a rising market, which is why the current move has gotten so extended.
From here, I see stocks selling off 5-10% over the summer. Use the swoon to buy stocks with both hands.
I think there will be a huge autumn rally that will take us to new all time highs, as the presidential election fades into the history books.
It really makes no difference who wins. The mere fact that ?the election is gone will be a major market positive. Once again, it will be safe to turn our TV sets back on.
And if Hillary wins, which she almost certainly will, that is another big plus. Remember, her husband Bill presided over a 400% rise in stocks. History could repeat itself.
Sectors? You want to know about sectors? Jeeze, you?re a tough crowd to please.
I think we can go back to our old reliables of technology (QQQ), health care (GILD), consumer discretionaries (DIS), cyber security (PANW), and biotech (IBB).
This coming cycle will see some new additions. They include interest sensitives, like banks (GS), regional banks (KBE), and? homebuilders (LEN).
The interest rate rise we don?t get next week will almost certainly occur in December, and the interest sensitive?s are already starting to reflect that.
Energy stocks (XOM), (OXY), (COP) have run too far too fast, and are already reflecting an oil recovery to $70 a barrel.
Solar (FSLR), (SPWR) will be another winning sector if oil doesn?t go to zero again. Remember, the federal solar subsidy was expended for five more years last December.
As for Apple, expect the slumber to continue until the next new product cycle for the iPhone 7 launches in September. In between cycles is never a great time to buy Apple.
For those who have been prudently sitting on their hands all year waiting for a chance to put more long term, non-trading money to work, that time is coming. Your entry point will open up over the summer.
Let me tell you that I have an unfair advantage in making market calls like this that are bold, confident, and possibly bordering on hubris.
I have the good fortune to live in the San Francisco Bay area. It is like living 10-20 years in the future.
The GDP here is definitely not growing at a feeble 2% annual rate, as it may be for much of the rest of the country (like North Dakota, Oklahoma, and Texas).
It is really growing at a 5% rate, and possibly much more.
The technology boom in the City by the Bay is reaching a 1990?s fever pitch. You can?t get restaurant reservations or lease office space. Companies have launched serial poaching of staff with only the most limited experience at eye-popping salaries.
Contractors everywhere have turned into prima donnas.
Housing is a joke. A friend of mine managed to score a tiny, rent controlled pre-war studio apartment for $2,000 a month after winning a lottery against 50 other entrants. He had to pay a $100 ?application fee? just to enter the lottery.
Oh, and since this is one of the few dog friendly buildings in the city, the whole place smells like crap and dog hair, as every resident owns a pet. Open the door, and you get a slap in the face.
Yes, I know that the United States is not San Francisco.
However, the tools and services that are created here, at a breakneck pace, can be used by the rest of the world to dramatically improve productivity and profitability.
That boosts growth and share valuations everywhere.
By the way, if any of you has a twenty something kid looking for a job and a purpose in life, send them to San Francisco immediately. With any luck, they will be able to gain a foothold and pick up some coding skills before the next crash occurs.
As for me, I am going to try and maintain discipline and not chase every little gyration of the market.
You can?t take advantage of the coming best buying opportunity in a year if you blew all your money trying to catch the small fry.
