Hey folks, we are now round out the final months of 2019 and while statistics tend to show markets finish the months of November and December up over 70% of the time we must be aware of the seeming lack of complacety in the markets. We’ve seen the VIX close out the week almost below the 12 handle which suggests the next bigger move in Volatility will be higher and equity markets lower. I am still sticking with my views however that we will finish the year in a bullish fashion, but not without a pullback. If this does occur it will encourage more cash to come into the markets a buyers and thus, move price action higher across all US Indexes.
• While we’re seeing most US Indexes closing at or near their all-time highs, we’ve also seen the S&P rise for 5 consecutive weeks. This move higher has also pushed the PE multiples over 18.65 which are highs not seen since January 2018 before a big pullback the following month. Going back to 1986 the average PE Multiple has been about 15…And if history is any judge these Multiples are likely to come down a bit with 2020 Earnings Growth forecast to come in around 8.8%…so this seems to me like a lot of good news has already been priced into the current price levels we’re seeing…And finally the US Markets have outperformed the rest of the World by over 25% so we could see some reversion to the mean in the next twelve months meaning we could see select foreign markets outperform US markets in 2020…
• We are also seeing a lot of sector rotation going on underneath the surface as money is moving away from risk-off safe havens to more risk-oriented assets. For example, in the Bond markets, we saw almost one third of the total negative yielding debt move above the zero line (peaked around $17 Trillion to about $11.9 Trillion) which has moved the US 10 Yr. Treasuries from a low of 1.47% to the current close at 1.93%. And while yields remain at historical lows this large move higher in rates Globally tends to show markets are more open to growth in 2020 with recessionary fears here in the US receding…
• This move from Risk-Off to Risk-On assets has also been apparent in precious metals and in currency markets as well. We’ve seen the Japanese Yen and the USD move lower as well as Gold and Silver giving back profits earned over the summer months when recessionary fears were much higher.
• Most of this underlying shift in global assets is coming as we see rising US productivity numbers along with an expanding labor force participation rate while the headwinds from the US-China Trade Tiff abating somewhat on recent news a Phase I signing is near. Value Stocks are as severely undervalued relative Growth stocks as it’s been since 2003 and the last time this occurred, we saw Value outperform Growth over 30%. This is also bringing more significance to Dividend paying stocks. And you may not be aware of this fact but going back to 1926 over 40% of all annual returns of the S&P come from Dividends…
• This coming Monday is “Single’s Day” in China (Similar to our “Black Friday”) where Alibaba is estimated to sell over $30 Billion in goods to Chinese consumers in a 24 hour period (the best Amazon has done is about $7 Billion)…it is called “Single’s Day since it the date will be 11.11. We could see a break-out of their stock, BABA from an ascending triangle pattern which would take BABA to new all-time highs.
Enjoy this Weekly Round-Up
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