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The Amazon, Walmart Gap Is Officially Closing

February 18, 5:00 pm EST

We had a big earnings report from Walmart today.

Last summer we talked about the huge divergence in the performance of Amazon (the world’s biggest company by market cap) and Walmart (the world’s biggest company by revenue).

Let’s take another look …

As we discussed, the market was pricing Amazon like a runaway monopoly — killer of all industries, especially retail. And the perception has been that Walmart was destined to become another rise and fall story of a dominant American retailer.

But there was a clear and new catalyst that entered. Trump had made it very clear that he was, not only looking to balance the playing fieldglobally, but also domestically. And that meant, the tech giants were due for some regulatory headwinds. Amazon has been in the crosshairs, and still is.

As such, as I said last summer, this chart below was becoming the proxy for the domestic “rebalancing” — where the foot is being lifted from the jugular of the old economy survivors.

With today’s big Q4 earnings report from Walmart, we now have this chart.

As you can see, the jaws have closed, albeit mostly driven by the resurgence of Walmart. This spread trade was good for about 25% since June. Amazon was 4.3 times the size of Walmart. Now its about 2.5 times as big.

And this convergence should continue to have legs, not just because of the pressure from Washington on Amazon, but also because of the competitive moves made by Walmart, that may be finally garnering some respect on Wall Street.

Walmart has been aggressively investing in online. They bought Jet.com in 2016, an American online retailer. That same year they took a large stake in the number two online retailer in China, JD.com. Walmart now owns 12% of JD.

JD.com already has a big share of ecommerce in China. They are number two to Alibaba, but gaining ground due to some clear competitive advantages. JD owns and controls its logistics infrastructure, and does quality control from the supplier to delivery. And unlike Alibaba, JD sources product to its warehouses to fight the counterfeit goods risk – a big problem in China. JD has 500+ warehouses around the country, and they now source product and service customers from one of the 433 Walmart stores in China.

So Walmart is positioned well to take advantage of the growth in the middle class in China. Amazon has yet to find its way in China. It has about 1% market share. Add to this, Google came in last year with a $550 million investment to help position JD to challenge Alibaba and Amazon on a global scale.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Key Charts Heading Into The Weekend … Watch Oil, EM

February 15, 5:00 pm EST

Stocks end the week on a strong note.

Let’s take a look at the charts on key global markets as we head into the weekend.

Here’s the chart of the S&P we looked at earlier this week. U.S. stocks continue to lead the way as the global risk proxy.

Crude oil closes the week near three-month highs. This one looks like a run back to the $70s is coming. Like the last runup from the $40 to the $70s in oil, people are (again) starting to convince themselves that there is a supply glut and that demand somehow isn’t strengthening with global economic growth near the best levels in a decade. A U.S./China deal is a catalyst for a lift-off in commodity prices, including oil …

The most important chart is this one…

With the Fed now in a ‘wait and see’ position, we’ve had the most important interest rate market in the world (the U.S. 10-year yield) back off from 3.25% to 2.66%. With inflation tame and economic data solid, the interest rate market has gone from a headwind to a tailwind (for global risk taking) within just the past six weeks.

That makes this next chart (of Emerging Market stocks) one of the most compelling. We have a big technical breakout this year, though the EM index has been relatively quiet this week, despite a very strong U.S. stock market. This may be the chart to watch next week…

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

December Data Reflects Sentiment Storm, But Sets Up For Downgrades and Positive Surprises

February 14, 5:00 pm EST

A big miss on retail sales this morning sent stocks sharply lower, initially.

This type of reaction presents a perfect opportunity to add at cheaper levels. Remember, this is old data, from December (delayed due to the government shutdown). And we know what was going on in December. Stocks were hammered. The government was heading toward a shutdown (which happened toward the end of the month). And the Fed raised rates right into it. It was a sentiment storm.

What is significantly correlated to sentiment? Retail sales.

Here’s a look at the dip in both …

The number this morning has already triggered downgrades in fourth quarter growth estimates.

The good news: This will also further drive down expectations for Q1 growth.

I say good news, because these sentiment driven indicators have a long history of short-term swings, and can bounce back very quickly. Remember, since December, we now have a near full retracement in stocks, a Fed on hold (and a more acommodative global central bank stance), and a somewhat more optimistic geopolitical outlook.

So, we’re setting up for positive surprises in the economic data for Q1. Positive surprises are fuel for stocks.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Chinese Stocks Signaling Growth, Trade Dispute Is Bottoming

February 13, 5:00 pm EST

Over the past couple of days we’ve looked at some key technical levels for stocks, as we continue this V-shaped recovery from the deep decline of December.

We now sit just a percent and a half off of the December 3rd highs. And today, we get a break and a close above the 200-day moving average in the S&P 500.

So, with all of the doom and gloom scenarios we heard as we entered 2019, a month later and we’ve nearly fully recovered the losses of December. And with expectations on earnings and growth all ratcheted down now for the year, we have a lot of fuel for much higher stocks.

As U.S. stocks go, so do global stocks. We looked at the chart on Japanese stocks yesterday. We did indeed get a big technical break overnight of the correction downtrend that started in October of last year.

So, today we have this chart …

With much of the concern on global growth directed squarely in China, this chart of Chinese stocks is signaling that perhaps Chinese growth is bottoming, and maybe because a U.S./China deal is coming.

In this chart above, you can see this bear market in Chinese stocks last year was started in January. That was when Trump rhetoric on a China trade war turned into action. He slapped tariffs on washing machines and solar panels (a signal of bark and bite). Now we have a bottom, as of last month, and a big technical break of the downtrend, arguably leading the patterns we’re seeing in U.S. and Japanese stocks. For how you can play it: Here are some ETFs that track Chinese stocks.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

The Chart To Watch Is Japanese Stocks

February 12, 5:00 pm EST

Yesterday we talked about the big trend break in the S&P 500 and the big 200-day moving average hurdle, above. Today we closed right on that 200-day moving average.

Here’s an update of the chart …

With this momentum, the chart tonight to watch is in Japan. Here’s a look at Japanese stocks.

As you can see, U.S. stocks have broken the downtrend of the past quarter, but Japanese stocks have yet to follow. The Nikkei remains 15% off of the highs of October. But with the strength in U.S. stocks today, we may get the breakout in Japanese stocks tonight, ahead of Japanese Q4 GDP (which is due tomorrow night). These are some ETFs that track the Nikkei. We own DBJP in my Forbes Billionaire’s Portfolio, an ETF that tracks the dollar-denominated Nikkei.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Watching Chinese Stocks For Clues On A Trade Deal

February 9, 5:00 pm EST

It’s a fairly light data week this week. And we’re in the final stretch of Q4 earnings season, which has been good, despite a bad stock market for the quarter.

As for stocks, after a very huge bounce back in January, February has been flat.

But we’re working on this chart …

As you can see, the S&P 500 has broken out of the downtrend that started October 3rd, but has failed (thus far) at the 200-day moving average (the purple line). That 2,742 level is a key area to overcome for a return back to the levels of December 3. That would complete this V-shaped recovery (about 3.5% higher than current levels).

Mnuchin and Lighthizer are in China this week. So we’ll get more information on the U.S./China trade front. However, it now looks like the March 1 trade truce deadline will be pushed back. And maybe the whole thing culminates with a meeting between Trump and Xi at Mar-A-Lago next month.

Perhaps a good signal, after the holiday week in China for the Lunar New Year, Chinese stocks opened the week strong. The index that tracks smaller cap stocks and higher risk tech names jumped 3.5%, for the biggest two day gain since early October. Broad stocks in China are now up 9% from the January lows.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Sitting On Big Levels For Interest Rate Markets

February 8, 5:00 pm EST

Let’s take a look at some key charts as we end the week.

As we discussed yesterday, we had growth downgrades from Europe this week, and it was driven by the worst case scenarios of a no-deal on Brexit, and/or a continued stalemate/no deal on U.S. China trade.

Let’s see how that’s being interpreted in the key global interest rate markets.

First, we should acknowledge that the big swing in global economic sentiment was driven by the optimism surrounding the 2016 elections (i.e. a pro-growth U.S. President).

That gave us a sharp rise in global interest rates, and a sharp rise in global stock markets. But now some of the air has been taken out of the optimism-balloon, and some big levels are being tested.

First, here’s a look at the U.S. 10-year yield. On election night the 10-year was trading around 1.75%. It has traded as high as 3.25% since. But now we have this big line representing the rise from election night …

The 2.55% area is a big area for U.S. rates.

And in Germany, the German 10-year yield has returned to pre-Trump levels this week.

After a decade of global QE, loads of global fiscal stimulus and countless backstops/intervention, lending your money to the German government for 10 years (the strongest economy in the euro zone) will pay you 9 basis points a year.

So, the interest rate market sits on critical levels heading into next week.

While a lot of attention by global politicians has been given to U.S. policy, this should be a clear signal to eurozone politicians to stop relying on the ECB, and to take some aggressive action to stimulate the economy (i.e. fiscal stimulus and structural reform).

Still, the move in rates looks well overdone. Probably a good time to sell bonds – looking for rates to move higher from here.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

2019 Looks A Lot Like 2016

February 7, 5:00 pm EST

Downgrades on growth today weighed on global markets.

First, the European Commission slashed growth expectations for 2019 for all the major euro economies. For the EU overall, they are looking for 1.3% growth, versus 1.9% a few months ago.

Next up was the Bank of England decision on rates this morning. They left rates unchanged, but downgraded growth for ’19 and ’20. Keep in mind, this all incorporates the reset of expectations on global interest rates that have taken place over the past month (i.e. acommodative and staying that way).

So, why the downgrades? It’s all driven by fears of the worst case scenario on Brexit and U.S./China trade negotations. That worst case scenario would be “no deal.”

Importantly, if we get these deals, the upgrades will come, quickly.

For the moment, though, we’re continuing to see an environment that looks much like 2016. Central banks responded to the crash in oil prices by resetting expectations on monetary policy (easier). And then the growth downgrades followed.

By the end of 2016, the U.S. election had swung sentiment from pessimism to optimism, and the growth upgrades came in — the Fed actually raised rates before the year-end.

I suspect if the fog of uncertainty clears, we will see the same. But in the meantime, promoting the worst case scenario for growth may get policymakers in Europe motivated to follow the lead of the U.S. with some needed fiscal stimulus. That would be good for European and global growth.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

A Big Infrastructure Spend Could Finally Give Us A Big Post-Recession Boom

February 6, 5:00 pm EST

Trump’s State of the Union address last night telegraphed the next priority in his economic plan: Infrastructure.

Just two years in, this has become one of the final pillars of his Trumponomics plan, yet to be executed on.

Remember, when Trump took office he quickly went to work on reversing regulations that were stifling industries. By the end of 2017, we got big tax cuts, which included incentives for companies to repatriate trillions of dollars of money held offshore. And, of course, the fight for “fair trade” is ongoing, and maybe close to a resolution.

With these pro-growth policies, we have an economy that has finally escaped the decade-long rut of sub-2% growth. We’ve returned to long-term trend growth (3%+).

So things look good, but we’ve yet to get the big kicker of an infrastructure spend. This is where we could see a real economic boom kick in.

And a split Congress is thought to be supportive of an infrastructure plan. We’ve heard the Trump plan, which is $1.5 trillion funded through a private/public partnership. After the Democrats won the house they said infrastructure would be high on the party’s agenda. Back in March, the Democratic Senators proposed a $1 trillion plan.

If we get it, a big infrastructure spend could finally give us the big bounce back we typically see after a recession (i.e. some very big numbers).

Remember, the recovery of the past decade was manufactured by central banks. The monetary stimulus and central bank intervention was good enough to keep the patient alive, but not to restore the global economy back to sustained, trend-growth. So we needed fiscal stimulus. And we’ve gotten it. But we’ve yet to see the type of big bounce back in growth typical of a post-recession recovery.

For context, in the left column of the table below, you can see the GDP numbers following the Great Depression. And on the right, you can see the growth of the post-Great Recession (pre-Trump).

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Times Are Changing For The Tech Giants

February 5, 5:00 pm EST

We’ve now heard from about half of the S&P 500 companies on Q4 earnings. And about 70% of those companies have beat Wall Street’s earnings estimates.

We’ve heard from the banks, early on, which broadly painted the picture of a healthy economy. And now we’ve heard from the dominant tech giants/ disrupters of the past decade.

Facebook beat. Amazon beat. Google beat.

But times are changing.

Remember, the regulatory screws have tightened on the tech giants over the past year. It was a matter of when the market would finally price OUT the idea that these industry killers would be left unchallenged, to become monopolies.

With that in mind, back in early October, when market risks were building (from China, to interest rates, to Italy, to Saudi Arabia), we looked at this big and vulnerable trendline in Amazon.

Here’s the chart on Amazon now …

The break of that line gave way to a 30% plunge in what was the biggest company in the world.

Bottom line: Amazon, Facebook and Google have entered into regulatory purgatory — after being largely left alone for the past decade to nearly destroy industries with little-to-no regulatory oversight. Costs are going UP and will keep going up..

With all of this said, the stocks of these tech giants might take a breather, but given their scale and maturity, more regulation actually strengthens their moat. There will never be a competitor to Facebook emerging from a dorm room or garage. The compliance costs will be too high.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.