Stocks on June 20, 2018: outlook


*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades. Go to the homepage for my latest market outlook. I update this webpage throughout the day.

Thoughts

  1. Big name investors aren’t worried about the trade war.
  2. The stock market’s breadth isn’t as bad as FANG makes it seem.
  3. Housing Starts made a new high. Medium-long term bullish for the stock market and economy.

Read [Update] Study: yield curve continues to flatten. A bullish sign for the stock market.
1 am: Big name investors aren’t worried about the trade war.
As I’ve said before, the trade war isn’t really much of a trade war because:

  1. The U.S. has the upper hand, and Trump is playing this to his advantage. China has a limited number of weapons to use in a trade war (from CNBC).
  2. This is most likely some more saber rattling, which will result in a deal in the coming months.

Some big name investors agree with this second point (from CNBC).

  1. Goldman’s CEO (Blankfein) thinks that Trump’s trade threats are a savvy negotiating strategy. And remember: Blankfein hates Trump, so he would have no reason to suck up to the President now. Blankfein is speaking his honest opinion.
  2. Paul Tudor Jones isn’t concerned about this. He sees it more as a “trade irritant” than a trade war. And remember: Paul Tudor Jones was one of the most bearish fund managers for the past decade, but now he has turned bullish. Jones isn’t some perma-bull who sees the positive in everything.
  3. And of course, Warren Buffett is optimistic that the trade dispute will end in a deal too.

1 am: The stock market’s breadth isn’t that bad.
You’ve probably heard this one a lot recently: “the stock market’s breadth is terrible – it’s all being driven up by a few high-flying tech and FANG stocks”.
That’s simply wrong. Breadth isn’t terrific, but neither is it bad. Breadth isn’t as bad as the bears make it seem.
The S&P 500 is a market cap weighted index. Hence, a few large stocks (e.g. FANG stocks) can have an outsized impact on the S&P. If breadth was “bad”, then the equal weighted version of the S&P should go up much less than the market cap weighted version of the S&P.
This isn’t the case right now. Both the market cap weighted S&P and equal weighted S&P are going up together.

 

Breadth isn’t a bearish concern right now.
1 am: Housing Starts made a new high. Medium-long term bullish for the stock market and economy.
Housing Starts just made a new high for this economic expansion.

The economy and stock market move in the same direction over the long run. Housing is a leading indicator for the U.S. economy. Hence, an improving Housing Starts is a medium-long term bullish sign for the U.S. economy and stock market.

This chart demonstrates how Housing Starts leads the S&P 500.

Read Stocks on June 18, 2018: outlook

Outlook

Here’s what I think will happen based on my discretionary outlook.

  1. 2018 will trend higher but will also be a choppy year.
  2. The S&P 500 has approximately 1-2 years left in this bull market.

I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets.
I have been long the S&P 500 since September 7, 2017 when it was at 2465.
*I also have a small Day Trading portfolio. Click here to view my day trades.

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