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S&P Boom: The Pattern That Predicted It

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S&P Boom: The Pattern That Predicted It

The S&P 500 has climbed to record highs this year.

Many analysts say that this is not the end of the boom and that shrewd advice would be to hold or buy more.

Investors are bullish on near-term prospects, and there could be more record breaking highs.

Read on for more.  

Breadth of Market

When looking at market-wide moves in price, it is important to look at the bigger picture and ensure that it is not one strong sector that is propping up the rest of the pack.

The important aspect of this boom is that it is not an industry or set of companies that is helping the averages, be it Dow Jones or S&P, grow to the levels they are seeing.

There is a breadth of the market not seen before, whereby many companies are contributing to this growth.

Oppenheimer’s chief of technical analysis points out that 70 percent of stocks in the S&P 500 are trading above their average 200-day historical close.

This shows that it is a market-wide renaissance, not an isolated, industry-specific boom.

Patterns through time

He compared it to the shows of strength that the market saw in the years 1995, 2003 and 2009.

There are even other historical parallels showing that his boom could continue.

Almost every time that the S&P has reached a new record-breaking high after being below its previous high for 12 months, the following 12 months have been up 14%.

12 out 13 times since the 1950s when this situation has arisen this has been the case.

When the market bounces back, it bounces back spectacularly.

He predicts a year finish of 2,250, with the recent breakout of 2,135 being an attractive entry point for investors to profit from the rally.

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Other investors showing positivity

Wells Fargo is in agreement.

The company is bullish about the global economy.

They recently went on a spending binge in London’s financial sector, even in the face of the Brexit security that is causing everyone else to panic and shut up shop!

Paul Christopher is a global markets analysts and head honcho at the company.

He estimates that the S&P will finish at 2,240, ten below the prediction of Wald, the contact from Oppenheimer.

Wells Fargo is a household name in finance, and their stance has often been indicative of wider trends in the economy.

He believes there will be pullbacks, and they could coincide with the US presidential election or any further referendums announced in Europe after Brexit.

The most likely would be the Netherlands and Italy, but neither is more liable to happen than not.

Strong US economic data and hopeful news for Japan had brightened fears of the world economy after a slump the day after Brexit when trillions were lost.

US payroll data (see below) heartened investors, and the re-election of Shinzo Abe meant stability and continued economic stimulus measures to kick start the Japanese economy.

S&P boom 1

Positive notes:

–    The Japanese election

–    Strong economic data from the US

–    A moderate, non-Brexit-supporting politician elected as PM in the UK

What’s so critical about Japan?

Tony Crescenzi is a market strategist for Pimco.

He explains that the significance of the re-election will ease fears that Japan would fail to keep treading water above dangerous stagnancy levels.

Although the stimulus measures haven’t fixed the situation, they are a necessary band-aid to an integral world economy (Japan is the world’s third-biggest economy by nominal GDP).

This has helped to maintain the S&P surge this year.

The yen continues to gain in value in spite of stimulus measures intended to devalue the currency.

While the continued measures will not work wonders, it is their continuation that is of comfort to investors who can see growth without the inflation.

With bonds at record lows, many investors have fled to haven assets like gold and stocks.

It is apparent that interest rates will be low for a while, although the Fed is sizing up an option to raise them as it did in fall last years.

Earnings Season, Final Word

The 70% figure mentioned earlier by Wald came on the back of two years of lows.

This is a great feat by the S&P 500 after a period of weakness.

The graph below shows record numbers of stocks above their 200-day average coincides with periods of growth:

S&P boom 2

Meanwhile, other data points to more positivity.

Earnings expectations have risen.

Or rather, the predictions of their decline have been cut. 5.5% was the initial forecast, but this has been revised to 4%.

Bear in mind this is after only ten days of reports.

The second half of the year’s earnings are not predicted to drop as well, which is unusual in this sort of environment.

There is a very high corporate performance in the US economy.

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Business

Stocks Close In the Red After Massive 900-Point Rally Falls Apart

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Stocks Close In the Red After Massive 900-Point Rally Falls Apart

In what could be an ominous sign of things to come, the stock market couldn’t hold on to a massive rally yesterday. Stocks closed the day in the red.

The Dow Jones Industrial Average climbed as much as 937 points intraday. This was before it gave back all the gains and closed the day down 26 points.

It could turn out to be a turning point that many experienced investors have been predicting.

Their belief is that the rapid 20% rebound in stock prices couldn’t last. They also believe that we may eventually re-test the March 23 lows.

900-Point Rally Fails

Jim Cramer, host of ‘Mad Money’ on CNBC seems to be slowly coming around to the idea.

“Just think about the last 500 Dow points [Monday]. I don’t know. They were done in, what, about 30 minutes. That’s not sustainable. There are people who are just anxious about taking something off the table because they’ve just seen a remarkable two-day bull market, and now they’re ready to find out about … the various stages that we need to get out.”

David Kostin, the chief U.S. equity strategist at Goldman Sachs, believes that stocks are poised to fall again. He mentioned that it’s likely, if you compare it to how the market behaved during the 2008 financial crisis.

“The way I think about this is [there’s an asymmetry] in terms of downside risk towards a level in the S&P 500 of around 2,000, which is about 25%, and an upside of around 10% to a target at the end of the year of around 3,000. [That’s not symmetrical] in terms of timing. I think the risk is a lot further towards the downside,” Kostin said. He then added: “I would just remind you that in [Q4 2008], there were many different rallies, they’re called bear market rallies, some of which were almost 20% a couple of times, but the market did not bottom until March of 2009.”

“I wouldn’t be surprised if we hit 2,000 on the S&P 500 ”said Alex Chalekian, the CEO of Lake Avenue Financial.

He added “We’re going to see opportunities and we’re going to take advantage of them,” he said. “But in the meantime, there’s no rush to jump back into the market right now.”

Economic Strategists React

Peter van der Welle, a multi-asset strategist at Robeco says “From a sentiment angle, recent exceptional bounces suggest that investor sentiment is still in the denial phase, rather than in the phase of capitulation that paves the way for a new bull market.”.

In addition, Albert Edwards, a global strategist at Société Générale, said that investors hoping that monetary and fiscal stimulus can save the market through this rally have made a mistake. “This optimism is the legacy of a long bull market. Investors can’t conceive that the Fed will ‘allow’ the stock market to collapse. Think again. That was the view in 2007 too,” he said.

Finally, Goldman Sachs conducted a poll with more than 1,800 of its institutional clients as respondents. It found out that 50% believe the lows have not yet been set. The survey also revealed that 75% believe equities remain in a bear market.

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Economy

The Next Generation of Sin Stocks to Ride Out a Bear Market

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The Next Generation of Sin Stocks to Ride Out a Bear Market

While the recent stock market rally has technically pushed the Dow Jones Industrial Average out of a bear market, many investors aren’t convinced it will last.

They expect that once the euphoria surrounding the $2 trillion stimulus plan wears off, the market will resume its slide downward as the economic impact of the coronavirus takes hold in the next few quarters.

Sin stocks, so named because they are things that we should go without but can’t seem to part ways with, are historically a great investment during downturns.

The added stress and uncertainty means an uptick in business for the companies producing these sinful indulgences.

Things like alcohol, cigarettes, weapons and gambling all fall under the umbrella of sin stocks, so companies like Altria (NYSE:MO), Diageo (NYSE:DEO), Sturm Ruger (NYSE:RGR) and MGM Resorts (NYSE:MGM) are all widely considered to be sin stocks.

And while they can make great investments during times of uncertainty, there’s a new breed of sin stocks that could generate even larger returns over the coming months as Americans turn to their (new) favorite vices.

Here’s a short list of “next gen” sin stocks that we expect to do very well.

Marijuana stocks

While this is by no means a “new” vice, it is only in the last few years that it’s been possible to directly invest in companies that produce and sell marijuana. That wasn’t possible during the 2008 financial crisis, so it will be interesting to see how the major players do during their first economic downturn.

Just like smoking, we expect demand to hold up very well, if not increase, during times of turmoil.

Consider the larger companies like Canopy Growth (NYSE:CGC), GW Pharmaceuticals (Nasdaq:GWPH) and Cronos Group (Nasdaq:CRON).

Video Games

Being a “gamer” is a lifestyle now, with livestreaming on YouTube and Twitch and professional Esports leagues formed around the most popular titles like Call of Duty and Overwatch.

Video games are big money now, and the larger production studios will continue to generate massive revenues as the culture grows in the years ahead.

Look at the big studios with strong franchises like Activision Blizzard (Nasdaq:ATVI) which has the Call of Duty and Overwatch franchises and Electronic Arts (Nasdaq:EA) which has the Madden, Battlefield and FIFA franchises.

Social Media Platforms

If you have a child or grandchild under the age of 30, you are probably very aware of the effort it takes to get their attention away from their phones and all the social media apps or platforms that they are using.

Tik-Tok, Twitter, Facebook, and Instagram are all designed to keep users engaged and spending as much time as possible on their platforms. The publicly traded ones are Twitter (NYSE:TWTR) and Facebook, which also owns Instagram (Nasdaq:FB)

While there are no guarantees when it comes to investing, as the coronavirus causes more people to spend time at home, they’ll be spending more time using the products and services of these next generation sin stocks, and that should translate to more revenues and higher profits for the companies.

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Investing

Bitcoin Collapse Should End Discussion About it Being ‘Digital Gold’

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Bitcoin Collapse Should End Discussion About it Being ‘Digital Gold’

For as long as Bitcoin and other crypto currencies have been in existence, a constant drum beat from its evangelists was the belief that it was “digital gold.”

The claim of course was an effort to throw a halo around cryptocurrencies as a “safe haven” and a “store of value” during times of crisis or economic uncertainty.

Per the Coinbase blog (emphasis theirs):

“Gold, and bitcoin, are safe havens from fiat currency devaluation, which historically tends to be incited by surging government debt. Armed with a myriad of technological advantages, accelerating development, and maturing global market, Bitcoin is a store of value to rival gold in the digital age.”

Not only that, but the same article says that Bitcoin is in fact better than gold (emphasis mine):

“Bitcoin development is accelerating and has already proven a myriad of advantages over precious metal…”

Those advantages are essentially listed as portability, scarcity, divisibility, privacy, low transfer fees and “auditability.” 

Yesterday’s market rout, with the Dow Jones Industrial Average collapsing 2,352 points to have its worst trading day since “Black Monday” in 1987, should have been the day where Bitcoin could finally live up to its promise.

All it had to do was not drop as much as the broad market and perform similar to gold, Bitcoin would have a landmark day.

Instead, it got decimated, plunging 12% to close at $5,700. 

In the past five days alone it has lost more than one-third of its value.

Gold, in case you are wondering, has lost a mere 6% in the last 5 days, and during yesterday’s market rout it only lost 0.74%.

One of those two “rivals” proved to be a safe haven and a store of value during these scary times.

The other proved to be nothing more than a speculative investment, providing absolutely no store of value.

Yesterday alone, the cryptocurrency market lost $62 billion in market cap, according to CoinMarketCap. 

In the past month, roughly 50% of the value of the entire cryptocurrency market has been erased.

Store of value?

Safe haven like gold?

Not even close if you ask Andrew Button at Motley Fool.

“While Bitcoin fans were caught off guard by BTC’s dramatic slide, the truth is that it wasn’t surprising at all. Put simply, apart from the scarcity, Bitcoin has nothing in common with gold. Gold is a physical asset you could trade if global financial institutions shut down; Bitcoin can’t be used without access to a computer. Gold is as old as human civilization; Bitcoin is younger than social media. Gold is used in manufacturing and jewelry; Bitcoin hasn’t seen any practical use case outside of black markets. The two assets simply have nothing in common whatsoever.”

While the siren song of “digital gold” is alluring, it’s time we stop pretending that Bitcoin has what it takes to become a real asset class. In times of uncertainty, it failed to perform as promised.

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