Top Advisors Corner

Mary Ellen McGonagle: Energy Stocks in Downtrend While Crude Hits New High and the Utility Sector Turns Positive in a Bull Market

Energy Stocks in Downtrend While Crude Hits New High and the Utility Sector Turns Positive in a Bull Market……Unusual Sector Moves and How to Play Them.

For the most part, the markets tend to act in a fairly predictable way.  Rising interest rates boost Bank and Insurance stocks, hints of an increase in military spending boost Defense-related stocks, and the possibility of lower corporate taxes helps the entire market.  Adding to that and important to my work – companies that report strong earnings go higher. 

That said, these typical correlations don’t always play out as expected and as seasoned investors will tell you, the minute you think the markets are predictable, it’ll throw you a curve.

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Mary Ellen McGonagle: Important Tools to Help Navigate These Politicized Markets

As investors, it’s easy to get caught up in headline-driven swings that the markets can deliver.  Trump’s recent election has brought us a particularly charged environment with real and proposed policy changes pushing various sectors in both directions. 

For example, last week we saw Trump’s new immigration policy push the markets down 1% on Monday. On Wednesday, there was a 2% rally in Healthcare stocks as talk of pushing drug approvals through faster was well received.  And finally, the week ended with a strong rally in Financial stocks sparked by Trump’s comments regarding a repeal of Dodd-Frank banking reforms.

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Tom McClellan: A-D Line New High

When the NYSE’s A-D Line hits a new high, it conveys a clear message that liquidity is plentiful.  The market might encounter other types of problems, such as investors’ emotions suddenly swinging, or a big news event rocking the market.  But if liquidity is strong, the market can more easily recover from such problems.

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Alan Newman: Crosscurrents January 30, 2017

Rationales & Targets

GDP came in at 1.9% for the fourth quarter and 1.6% for the year and yet stocks trade as if we are in the midst of a tremendous economic boom.  In fact, the last time GDP was above 3% growth was a dozen years ago in 2005.  As well, inflation grew to a 2.2% annualized rate in the fourth quarter, providing additional impetus for the Fed to raise interest rates another notch if the trend continues.  Stocks have been able to shine with interest rates at historic lows, but a reversal will quickly kill that thesis.    As a reminder, Shiller’s CAPE (cyclically adjusted P/E) is now 28.4, the highest since the tech mania.  CAPE is a ten-year average.  Over the last 12 months, the S&P 500 is trading a bit below CAPE at a 25.8 P/E but this is still way, way above the historic norm of roughly 16.  Even more curious, over the last 12 months, earnings for the S&P 500 are down 1.7%.  Long term, it is not unreasonable to look for a reversion to the mean, which would take stocks down at least 38%.

Other than one day in balmy July 2014, the so-called “fear” VIX index is trading at its lowest since early 2007, a year that wound up as tumultuous and almost fatal for the economy.  The gap between bulls and bears is unusually wide.  Historically, these are the perfect circumstances to catalyze a correction.  On an hourly chart, a break below 2279 for the S&P 500 and below 19,908 for the Dow would be troubling for bulls.      

Gold = Security 
Please note: a free three issue trial to Crosscurrents is available upon request.

It should come as no surprise that we remain bullish on the long term prospects for gold bullion and gold stocks.  We do no analysis of other precious metals, including silver and platinum.  We would rather just focus on our views of the super bull market that we strongly believe commenced with the tragedy of 911.  The impact of terror still has the potential to damage economies and to direct investors to what is generally perceived as the currency of last resort.       
Even if the new administration successfully follows through with the campaign promise to eradicate ISIS forces on the battlefield, there is no guarantee that the threat of terror attacks will be significantly reduced.  The U.S. had the same objective in mind when the previous administration killed Osama Bin Laden on May 2, 2011.  Only three days later, a suicide bomber detonated a car full of explosives at a local police station.  The Islamic State of Iraq claimed responsibility and said it was revenge for the death of Bin Laden.  The attack killed 24 recruits and injured at least 72 more.  Since Bin Laden’s death, there have been 258 Islamist terror attacks claiming 9033 victims.  In the November issue, we presented a chart of the five year average of incidents.  Our chart illustrates the five-year average of people killed at the hands of terror.

If terror attacks ever extend to the financial markets, infrastructure or the internet, the consequences could be devastating.  These are additional reasons we believe gold means security and has a place in every portfolio.  

For more information, please contact us:

Alan M. Newman, Editor, Crosscurrents