Stocks on April 12, 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. NAFTA renegotiations will probably conclude before July. Odds of a trade war are decreasing. Not a medium-long term bearish factor for the stock market.
  2. Inflation is rising a little bit. There is no “surging inflation”. Not a medium-long term bearish factor for the stock market.
  3. Earnings expectations will probably fall throughout the rest of 2018. Not a bearish factor for the stock market in 2018.

Read Study: the stock market is forming a bullish divergence
4 pm: NAFTA renegotiations will probably conclude before July. Odds of a trade war are decreasing. Not a medium-long term bearish factor for the stock market.
Contrary to what many had previously expected, there will be no preliminary NAFTA agreement this Sunday because Trump has pulled out of the summit in Peru. Progress on the NAFTA renegotiations may be slower than expected but is still heading in the right direction.
The 3 NAFTA countries want to finish these renegotiations by July 1, 2018, which is Mexico’s presidential elections. This means that the odds of a NAFTA trade war are shrinking. This is not a medium-long term bearish factor for the stock market.
Remember, Trump wants to successfully renegotiate on NAFTA soon. He needs a quick win (even if it’s just a small win) to help the Republicans with their midterm elections.
*In the meantime, Trump wants to take another look at joining the TPP, a trade pact that the U.S. withdrew from last year. Hardly the actions of someone who wants to “ignite a global trade war”. Actions speak louder than words.
1 am: Inflation is rising a little bit. There is no “surging inflation”. Not a medium-long term bearish factor for the stock market.
The year-over-year increase in CPI (inflation) has gone up a little bit to 2.35% (rounded to 2.4%). This is close to our 2018 inflation targets of 2.5-2.6%.
As you can see, inflation is rising a little bit right now, but there is no “surging inflation”. The inflation fears from early-2018 are largely nonexistent. Inflation is still rather low. More importantly, rising inflation is not consistently bearish for the stock market.

1 am: Earnings expectations will probably fall throughout the rest of 2018. Not a bearish factor for the stock market in 2018.
Earnings expectations have surged since the Trump tax cut was announced. Some traders and investors are concerned that falling earnings expectations in the next few months will be a medium-long term bearish sign for the stock market.
It isn’t. It’s pretty much irrelevant. Earnings expectations ALWAYS fall from the beginning of the year to the end of the year. This doesn’t mean that the stock market always falls from the beginning of the year to the end of the year. The recent surge in earnings expectations is primarily due to the Trump tax cut. Hence, falling earnings expectations throughout 2018 will not have a long term bearish impact  on the stock market. This is normal.

Read Stocks on April 11, 2018: outlook

Outlook

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

  1. The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
  2. 2018 will trend higher but also be a choppy year. There will be another correction later this year.
  3. Why I’m medium-long term bullish on the stock market from a discretionary point of view.
  4. 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. So please take my short term thoughts with a grain of salt.
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.

Leave a Comment