Two views of the next leg

The Bad times of Q4 are over. Q1 was good because the FED repented, so don’t look in the rear mirror. Instead position for the big highs to come...

Or, are we too complacent by risking high valuations in a slower economy? We know that never ends well.

April 27, 2019

Two Divergent Views

The Bad times in Q4 are over. Q1 was good because the FED repented, so don’t look in the rear mirror. Instead position for the big highs to come...Or, are we too complacent by risking high valuations in a slower economy? We know that never ends well.

Which is it?

There is a complete divergence of views regarding the future and the stock market. 

I can side with the bulls:

                Nothing in the economy seems to be moving really in the wrong direction.

                Cyclic areas are poised to do well

                After inversion the market tends to go UP for a year or so with double-digit total upside returns.

                Don’t fight the FED and other central banks.

I can side with the bears:

                Complacency reigns

                Individual investors have just put more money to work in the last 30 days than at almost any time – typical of what happens at peaks

                Valuations are high, margins are declining, profits may still be there but are smaller.

                Hope is not a valid reason

Maybe it will be both ways.

It is highly unusual for the stock market to go up at such a steep angle for four months without a pull-back that is bigger than what folks are looking for right now.  Typical pullbacks from a cycle are between 30% and 60%. So, we’re talking a pullback of 6% to 12% off of current level.  Either would take you below the 200 day moving average.  Then, we could see a bull run from there. 

Timing is such that the rollover could start anytime in a few weeks and extend into the summer – just in time for a Fall run-up.

But, boy, it feels like one should push all the chips in right now – so much positive support from the media, and people have FOMO (fear of missing out).

There is strong evidence of cyclic areas of materials, industrial, financial, tech and discretionary being good places to put bets - - Not healthcare and mixed opinions on energy.   Others are seeing the potential of the market melting up to 3400 from current 2900 by the end of the year and the bull run will continue for another year. 

On the other hand, the growth bias of the last 10 years is over extended, some profits are down and others will be down It. The growth can't continue forever. Maybe its better to shift to value and away from growth.

Here's an idea...all the money thrown at tech IPOs recently has to come from somewhere. Conservative investors are not the ones buying the IPOs – it is the same kind of money that was in FAANG and the high growth stocks.  So, some of these “growth” areas may see a shift of money out to fund the newly perceived hot opportunities. 

Whatever. 

Branson   

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