6th Inning / Tune Out Noise / Ecstatic Confidence

June 22, 2018 | Bruce MacKay


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6th Inning / Tune Out Noise / Ecstatic Confidence Lots of negative news (as always) and equity markets mixed = TSX all-time high – DOW having 6th bounce in trading range this year & Nasdaq (technology sector) doing very well. What’s next?

Positives: Ned Davis S&P 500 sector roadmap (see chart –pg 7) has expected equities to drift lower to Sept/Oct during this 2nd presidential year – a year of historical tough policies - followed by year-end equity rally. JPM- Diamond “we are in the 6th inning of the ball game”. Measure of confidence the highest since 2000– risk appetite for investors has risen meaningfully. Buybacks – internal funds have been good enough and capital expenditures low enough that corporations appear to be in great shape to do more investment or more stock buying (N. Davis).“Forward Earnings – strong signal form S&P 500/400/600 – all rose to record highs in mid-June – S&P 500 is $168.40 – target $170 for year-end – Forward Revenues – record highs in June – Profit Margins record highs – 12.2% in mid-June up from 11.12 during December – Bottom line – noise hasn’t drowned out the signal – investors will tune out the noise and focus on the signal over the rest of the year (Dr. E Yardeni)”. Investors stay home investment strategy vs go global. National Federation of Independent Businesses May survey of global business owners showed they were ecstatic last month. Investors expecting banks to announce large returns of capital to shareholders after Fed reports quantitative results from stress tests – high profits – rising net interest margin – dividends & buybacks. US corporate profits growing faster than GDP – most likely 20% this year and hundreds of companies raised dividends in past year – P/E is 21 on trading 12-months and less than 17 forward earnings – Fed is nowhere near tight and market is mispricing both growth and inflation risks to bond yields (B. Wesbury).

Negatives: Bull market in mature phase – 40.7% of total households financial assets and thus its higher than the 1968 & 2007 peaks (Ned Davis). Large institutions are the second largest holders of stock are also overweight stocks (N. D). Margin debt is at high levels in brokerage accounts so cash is low and debt is high (N.D). Trump bullying Chinese in public rather than negotiate with them in private is risky. Chinese central bank delivers surprise stimulus. More & more of the leaderships stocks have been the more aggressive high beta stocks and a lot of the defensive names have been left for dead – defensiveness is at a record low – there is a 50/50 chance for a 15% sell-off this year (J. Paulsen). Bond traders get ready for yield curve inversion as soon as next week (Bloomberg).

Investment Wisdom: “Money is made by sitting, not trading” – Jesse Livermore

PORTFOLIO MANAGEMENT–Week’s Highlights
Stock of the Days: JUST, ENB, PLZ.un, SNC,

New Issues: DIR.un, BLX, AP.un, E-split Corp, VB

Have a great weekend. Bruce

MacKay Weekly Investment Report Contents:
Page 1 - How I see It
Pages 2 & 3 - Notes and Quotes
Page 4 - CDN Mkts
Page 5 – Int’l Mkts
Page 6- Funds & ETFs 
Page 7-9 – Favourite Charts
Page 10 – MacKay Group Portfolio Management
Page 11 – Comprehensive Wealth Management
Page 12 – MacKay Group News & Events

 

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