HOW I SEE IT – by Bruce
Mid-month Reversal/Benefit of doubt/Buy dip is back.
Big equity reversal from mid-month lows -pattern we’ve seen many times - will we hold for month end - if so, good start for the year - a good sign for the whole year.
Positives: AAII Investor Sentiment Survey - 43.4% bullish/ 27.1% neutral/ 29.4% bearish - big jump from 25% bullish reading and Dow has rallied 1000 points or 2 1/2%.
S&P 500 Index Strategist Projections versus actual performance - At the end of every calendar year top strategist in the industries set their S&P 500 targets for the upcoming year end. For the last five years, the high-end projection, 4/5 times was correct. Covid year was the year it did not. This year’s projection is 7100.
RBC WM. Jim Allworth - “Global equities have the potential to add to the strong gains of the last two years. We believe this would require that economic and earnings growth don’t falter. For now, we would give this uptrend the benefit of the doubt. Portfolio should stay committed to equities up to but not beyond their long-term targeted exposure.”
RBC US Equity Strategy. Pulse of the market – “Initial batch of 4Q24 earnings call commentary, which is mostly from financials highlights the optimism and uncertainty that are both embedded in the current outlook for stocks. References to consumer spending have been positive despite the pressures of higher interest rates.
US 30-year mortgage rate declined - first time in 6 weeks.
Stocks and bitcoin fared very well first few months of Trump 1.0 -2017- will we have a repeat this time.”
Ed Pennock – “PIMCO wrote that they expect rates to be on hold for the foreseeable future. The return of animal spirits. Analysts expect short term rally - 6500 S&P 500.”
Blackrock – “Long-term bond yields have jumped as markets have embraced our previously contrarian higher for a longer view. But it doesn’t necessarily spell pain for stocks.”
Jim Paulsen - “Several economic indicators have turned more contrary during the last year, including a significant rise in bond yields, a much stronger US dollar, declining factor utilization rate, rising labor market on unemployment rate and a sluggish if not insufficient money supply growth. These forces are likely to slow the pace of overall economic activity and profit. Performance will also likely become less impressive particularly relative to current expectations. Our recession still looks unlikely and consequently profits should not collapse, but they may begin disappointing investors as the year progresses.”
Dr. Ed Yardeni – “Expectations for more rate cuts this year than previously expected buoyed both bond and stock markets last week. If inflation falls the course, we expect down to 2% the Feds dual mandate would be achieved so it wouldn’t need to ease further. Upon reassessing our subjective probabilities for a three-alternative outlooks for the economy and markets were sitting pat on our base case scenario- 55% chance remains the roaring 2020s. Supporting that scenario, baby boomers flush with wealth and spending it.”
Tommy Lee – “Inauguration marks start pro biz regime. ISM expected to recover to 50 in 2025 reversing longest ever stretch below 50 for 26 months = higher EPS = higher stocks. Bottom line = by the dip is back.”
Stanley Druckenmiller - “I’ve been doing this for 49 years and we’re probably going from the most anti-business administration to the opposite. We do a lot of talking to CEOs and companies on the ground. I’d say CEOs are somewhat between relieved and giddy. So, we’re a believer in animal spirits.”
Negatives: Trump’s flurry of executive orders on the first day in office upended the playing fields for various industries in a bunch of fell swoops. There are winners and losers. Regulatory roadblocks disappear, trade policies are overhauled, and federal agencies operate under the new rules. Energy policy will now favor oil and
gas over the green fuels and government efficiency efforts will benefit high-tech players. (It does take time and there are legal roadblocks).
Brian Wesbury – “Still feels S&P 500 is 20% over valued - using Capitalized Profit Model. The elephant in the room is the sheer size and growth of the Federal Government. Especially re-distribution. Big government is the problem. The elephants in the room were all built by government. Fixing that would give the economy a chance and return sanity to the markets. (Canada too).”
Investment strategy – “The best time to plant a tree was 20 years ago. The second-best time is now.” Chinese proverb
Bruce
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