Update 79: Stock Market-Time To Cutback Exposure?
February 8, 2020
OBSERVATIONS & OPINIONS
Last Week/This Week……We had a great job report on Friday? Yes; the top number beat and earnings were up about 3% or
so but they took out over 500,000 jobs from last years total and the amount of jobs created in the last 3 yrs (6+mill) is less than during a 3 year period with Obama (8+mill). Jobs are popping in construction & health care but retail (consumer) and manufacturing faded. Sectors such as building materials, health care, biotech, pharma, medical equipment and therapeutics have seen a lot of action lately. The baby boomer are in their health care years and if what they did to the price of college education
(their kids) and real estate (their homes/second homes) during their prime buying years; placing a bet on rising health care doesn’t seem like the biggest stretch out their. Also; don’t discount the re-fi boom that continues to as even the guys with harp loans may lower their payment creating more spendable income. The loss in retail jobs may have more to do with the cahnge in buying habits to more online than to any cracks in the always spending always leveraged consumer….we’ll keep an eye on that (70% of growth).
Next week; let’s see how the virus develops (BABA holds 200? TECHYY holds 48?) as some estimate 70% of the suppy chain comes out of China and growth rates cut to 4 1/2% which has been unheard of in China. So watch out Mondayy for China PPI & CPI plus Tues. Powell & La Garde speak while Wed. OPEC monthly oil report and Thurs we get USA CPI & Japan PPI with Friday we get USA
retail sales and China sends us a Valentine with a 50% tariff cut on 75 billion of goods…Don’t forget your own Valentine:):):)
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Stock Market
Last week we told you that we are operating with the idea that S&P 3340-3400 is our new sell zone looking for exhaustion and a pullback toward the breakout point of 3030 ball park is potentially forthcoming. Why? the reasons are ranging from valuations
way ahead of earnings and growth which can be hard to maintain and this virus and it;’s effect on China’s growth is unknown.
Some of the big 5 (MSFT GOOG FB AMZN AAPL) seem to have stalled and if next week the others roll over the odds will jump.
We have a world awash in liquidity which underpins stocks but the inflows into S&P ETF’s appear to be double the norm which doesn’t seem to occur at the lows and TSLA may have benefited from a 14 Billion dollar inflow due to positioning in the Russell 1000 so the both the inflow and re-balancing may be transitory leaving the prices to fall under their own weight once moderated.
The moving averages are still pointing up and our economy is viewed as liquid and strong by the world & the Fed expected easy.
With all this and more; the evidence still is pointing up however some very respected men say wise to adjust allocations that would book some profits and reduce the size of your exposure from 3-5 years ago may be prudent. Time will tell….off to 3600-4100 S&P?
Bond Market
Some say the liquidity around the world (88 Central Bank Cuts 2019) is off the charts and the risk of defaults from recession is off the table so riding high yield and emerging markets (who could get a currency kick as well) is the way to go until something changes despite spreads being so tight. Weekly supplies of investment grade topped estimates this week and junk bond offerings are off to their busiest numbers in a decade. Even Louis Vitton in Europe issued bonds some of which have negative yields. Yeah
it seems like madness out there as no belief that a slowdown nor inflation have a chance to rear their ugly heads in the foreseeable future. We don’t see the 10yr Treasury much under 1.40% nor above 1.80-2.0% in the immediate future but if you own bonds and either growth or inflation spikes you will be hurt & wonder why you were willing to lend your money out for so long for so little.
TLT as we said above 142 suggests lower yields and that is exactly what we’ve seen…beware or virus wind down & up econ #’s.
US Dollar
Traders are plowing into the dollar in the last 2 weeks after a selloff stopped at 96.50…we are now in the high 98’s.
Yield advantage, the Phase One deal and positive GDP versus Italy & France down…Germany & Spain about flat and the Asia markets in a turmoil plus Brexit still a work in progress…not hard to understand the flight to the buck….however our base case is and has been a range of 99.50-95 which coincidentally held up for over a year….so we are getting closer to the upper parameter.
Crude Oil
China demand falling off a cliff…Saudi look like they’ll have to bear the brunt of cuts as Russia is cool with producing as long a we remain above 40. Darkest before dawn??…that’s the big question isn’t it. I’ve seen some European ETF’s like to have Royal Dutch RDS.A as one of the top holdings so with yields at 6+% and price at or near 52 week lows around 50…it could be time to start keeping an eye on for turn up signs if any. The crack temporarily under 50 was either a way to run stops and we turn up from here or the sign of more to follow on the downside….right now I have a weak lean toward the former with a very short leash.
Gold-Silver Copper
Copper went into the tank right before the virus as if China’s economy contracts (the China government is injecting capital to stabilize it) the copper market is in trouble (off about 15% from the highs in a month). As we said last week…this was a big week for Gold & Silver and they kind of faded with GDX under 28 close on Friday. As we said; a close above 30 GDX & 1600 spot Gold would get me from feeling it’s losing its legs to we got our second wind. Same opinion this week…Fed & Liquidity underpin prices.
Soybeans Ect
As we said last week so far the Phase I hasn’t produced anything and now with the virus you can forget big AG buys right away.
So it’s Round Three for farmer bailouts who supposedly are using the money to pay down debts & hoard some capital rather than invest in equipment ect. (CAT or DE) Soybeans unable so far to clear 950-10 bucks so wait and see. Always wonder why public funds to finance farmers and Boeing Banks ect. ect is not socialism but helping out poor folks would make us Venezuela??
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