Weekly Cycle: Market Outlook for 07.16.2018
Each week, we review the stock market using a specific set of information sources in order to cut through the noise generated by media publishing attention grabbing headlines. Weekly updates give e the opportunity to play trends while not overreacting on a daily basis.
“Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day-if you live long enough-like most people, you will get out of life what you deserve.”
― Charles Munger, Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger
Performance of a handful of macro indexes, as well as index and ETFs on specific sectors of particular interest.
- VNQ (Vanguard REIT index) up over 8% over last 90 days
- SPY up slightly oer last week
- MJ down over 7% vs last year
- VWO (emerging markets) down over 8% over last 90 days
Based on data and info from TradingView (Click for 30% off a pro subscription)
Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3).
- SPY remains bullish, BOND remains bearish
- MJ is down significantly from a week ago
- XHB has surged in the last week
- HACK very positive after 2 weeks of somewhat weaker scores
OldProf’s Risk Analysis
Each week, at the Dash of Insight blog, OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.
This week, OldProf writes in Weighing the Week Ahead: Anything Goes!
“Short-term trading conditions continue at highly favorable levels. Actual volatility remains low.”
“I continue to find that anyone with a reasonable approach to economics and any sort of analytical track record shares this basic thesis. Despite this, the people getting air time and page views are those whose recession forecasts are of the “kick the can” variety. They are now focused on 2020. How have their two-year forecasts done in the past?1
Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.
This week, Mark writes in Weekly Market Recap Jul 15, 2018
“TRADE WARS ™!!!! certainly seems like a “sell the rumor, buy the news” event.”
“Short term: Very choppy on the S&P 500 of late but a new “higher high” (a high higher than the previous high – in this case early June) was hit. NASDAQ same story but now all time highs.2
Articles of note
— A macro data update from Fat Pitch blog shows continuing positivity around the economy.
“The macro data from the past month continues to mostly point to positive growth”
“In summary, the major macro data so far suggest positive but modest growth. This is consistent with corporate sales growth. SPX sales growth in 2018 is expected to only be about 6-7% (nominal).
With the rise in earnings and the moderation in share prices, valuations are now back to their 25 year average. The consensus expects earnings to grow about 18% in 2018 and 10% in 2019. Equity appreciation can therefore be driven by both corporate growth as well as valuation expansion (chart from JPM).3
— More positive signs for the economy in general
“Currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight”
Investment and Recessions
Bill McBride Calculated Risk
“Currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight4
— Many seem to think Chinese Tech industry is largely a copy of the American tech industry. Here’s an in-depth look at how it differs.
“Chinese tech isn’t an imitation of its American counterpart. It’s a completely different universe.”
Letter from Shenzhen
“Shenzhen is a city built on exceptions. David explains that when the Chinese government decided to experiment with capitalism in the 1980s, it didn’t want to expose existing major cities like Beijing or Shanghai to the risk of failure. Instead, the government chose Shenzhen, a tiny cluster of fishing villages, even building up a wall in some parts to demarcate the boundary between socialism and capitalism.
Since the beginnings of the experiment, Shenzhen has exhibited all kinds of hockey-stick-shaped growth that people in Silicon Valley talk about in hushed tones of exaltation. The population has skyrocketed from 30,000 to almost 12 million, the cost of living has gone up, innovation is surging, and the time it takes to create, design, or build a new product decreases day by day.5
— Here’s a bit of background on two Chinese tech giants; Tencent and Alibaba.
“In 5 years, technology services will make up 65 percent of Ant Financial’s revenue, compared with ~34 percent in 2017”
Alibaba versus Tencent: who will win? – Chris Skinner’s blog
Chris Skinner’s blog
“Alibaba and Tencent. Both have market capitalizations that hover around half a trillion U.S. dollars. Both command sectors of the rapidly growing Chinese digital landscape: Tencent owns the leading gaming and messaging platform, while Alibaba rules e-commerce. Both are aggressive investors inside and outside China. Each is the pride of their not-quite-first-tier hometowns: Alibaba of the ancient city of Hangzhou near Shanghai and Tencent of shiny-new Shenzhen across the border from Hong Kong. Finally, both touch an astounding percentage of the world’s most populous country: Alibaba’s various online marketplaces count 552 million active customers; Tencent’s WeChat messaging service recently surpassed 1 billion accounts …6
— Vitaliy Katsenelson on Softbank’s Masayoshi Son and the outlook for Softbank.
“You can think of [Softbank] as buying a stock at a roughly 50% discount to the market value of its assets or as a way to buy Alibaba at less than half its current price”
What Would You Get if You Crossed Warren Buffett, Richard Branson and Steve Jobs? (Updated)
Vitaliy Katsenelson Vitaliy Katsenelson Contrarian Edge
“Like Apple co-founder Jobs, Son is blessed with clairvoyance. He saw the internet as an transformative force well before that fact became common knowledge. In 1995 he invested in a then-tiny company, Yahoo!, earning six times his investment. But he didn’t stop there; he created a joint venture with Yahoo! by forming Yahoo! Japan, putting about $70 million into a company that today is worth around $8 billion. (Yahoo! Japan is a publicly traded company listed in Japan.)7
— Sticking with Softbank, here’s an article from the NYTimes Dealbook on how underpriced SFBY is compared to the underlying assets.
“SoftBank’s stake in Alibaba alone is now worth nearly $132 billion, or 40 percent more than SoftBank’s market cap.”
“If those deals go through, what would be left of the company is essentially a gigantic, publicly traded venture capital firm. Its holdings would include:■ A 27 percent stake in Alibaba Group, the Chinese internet behemoth■ A 43 percent stake in Yahoo Japan■ A stake in ARM, the British designer of computer chips■ An investment in its nearly $100 billion Vision Fund, the much-ballyhooed tech investment vehicle that owns stakes in Uber and much more8
— On the Irreverent Investor, Michael Batnick presents a simple momentum strategy idea that has outperformed the S&P 500 index.
a simple momentum investing strategy “outperformed the S&P 500 with significantly lower drawdown”
“Here are the rules: If the S&P 500 outperformed 5-year U.S. treasury notes over the previous twelve months, invest 100% of this portfolio in the S&P 500 in the following month. If the 5-year U.S. treasury notes outperformed the S&P 500 over the previous twelve months, invest 100% of this portfolio in bonds in the following month. That’s it. Pretty simple.9
— Mike Williams takes a rational look at the prospects of trade wars and believes it’s bluster than will go the way of countless other scares.
“And the reality break here is that China has few attractive options other than making trade fairer.”
Like Water Off a Black Swan’s Back
Mike Williams Alan Steel
“The bluff and bluster will go the way of Brexit, Chinese Yuan devaluation fears (Acts I, II, II, IV, V, VI and VII), Ebola outbreaks, the outrage at the Border (I mean the Janet Reno version – not the current remake), and everything else that was previously going to throw the globe into the pits of hell.