Good friend to our website, and legendary hedge fund allocator, Mark Yusko was on CNBC yesterday and made the bold statement that the Fed should move rates back to normal in one swoop. As we’ve talked about many times, and contrary to the broad sentiment, the first rate hike by the Fed is a celebratory event. After nine plus years of crisis and near global economy apocalypse, the Fed thinks the economy is robust enough to begin removing emergency policies. Article from CNBC.com below with Mr. Yusko’s sentiments…
Morgan Creek Capital Management CEO Mark Yusko said Wednesday the Federal Reserve should raise interest rates to 3 percent in one fell swoop.
“Get back to normal,” Yusko told CNBC’s “Squawk Box.”
“Just reload the gun, 300 basis points.”
Acknowledging a move like that would shock the markets, he argued, “it would send a message of confidence and saying the economy is strong [and] it can handle normal interest rates.”
The Fed’s two-day September meeting begins Wednesday, with a decision on whether to raise rates for the first time in more than nine years Thursday afternoon, followed by a news conference by central bank chief Janet Yellen.
Read More Fed’s market dependence is troubling: David Darst
“If you think about … 100-plus years of history, the short-term rate has been equal to the nominal GDP growth rate. Nominal GDP is around 4 percent. So 3 [percent] would even be below that,” said Yusko whose Morgan Creek Capital, currently with $4.5 billion in assets under management, is primarily a hedge fund allocator, which means it invests in other funds on behalf of clients. The firm also makes its own bets on certain stocks.
“This artificial period of rates has been harmful,” he said. “It’s like water behind pipe. If you hold it back, hold it back, hold it back. When it finally releases, it’s going to be much worse.”
Morgan Creek was founded in July 2004 by Yusko, a former chief investment officer of The University of North Carolina at Chapel Hill Endowment. He has close ties with investment legend Julian Robertson, who provided seed funding.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 27% gain since 2012.
In the face of all of the fear and confusion surrounding China’s sharp stock market decline in June, and the recent moves by its central bank to weaken the Chinese currency, one billionaire has been using the opportunity to load up on Chinese stocks.
His name is Chase Coleman. He runs Tiger Global, a hedge fund that was seeded by billionaire Julian Robertson.
Few have had the performance over the past fifteen years that can compare to Coleman’s. According to an investor letter from Tiger Global, his hedge fund has returned 21% annualized on long positions since 2001. That compares to a 4.5% annualized return for the S&P 500. This run has made Coleman a billionaire before the age of 40.
Not only does Coleman have more than 20% of his hedge fund invested in Chinese companies, but he has been aggressively building those big stakes over the past two months as China’s stock market slid.
At Billionairesportfolio.com, our strategy is rooted in following the moves of the world’s best billionaire investors. This strategy can be even more powerful when we are able to “buy the billionaire on a dip.” In all of five of the stocks listed below, we can follow the wunderkind billionaire hedge funder, Chase Coleman’s lead, into his plays on China. In three of the stocks, we can buy them cheaper than the price Coleman paid for his shares.
1) JD.Com (JD)- JD.com is currently Chase Coleman’s biggest position in his hedge fund, making up nearly 7% of the fund. This stock has been slammed recently, which offers an attractive entry point into one of the fastest growing e-commerce stocks in China.
2) Alibaba (BABA) – Coleman has 6% of his hedge fund invested in Alibaba. Alibaba was hit hard on a weaker earnings report today, but is a dominant company in China, with huge potential growth. Baba shares are 40% off of the highs of just nine months ago, and trading cheaper than where Coleman bought his shares.
3) Vipshop Holding (VIPS) – This is Coleman’s third largest position in China and he is down on his investment. VIPS also happens to be one of billionaire hedge fund manager John Burbank’s top positions at his fund Passport Capital. VIPS has been a highly volatile stock, going from $19 to $30 this year and back to $19 today.
4) 58.com (WUBA)- In recent weeks, while the rest of the world was panicking about China’s stock market volatility, Chase Coleman added to his positon of the Chinese internet company, 58.com, and now owns more than 6.3% of the company. WUBA sold for $83 just months ago, and now trades at $51, offering huge upside if the stock bottoms here.
5) eHi Car Services (EHIC)- In June, Coleman and Tiger Global initiated a brand new position, (21.5% ownership) in EHIC, the “Uber of China.” He is now down on this position, so you are able to buy eHi at a cheaper price than one of the best hedge fund managers on the planet.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 27% gain since 2012.
It’s not often that you get an opportunity to buy Apple stock, the world’s most widely held stock, at a discount. But given the broad market declines of the past month, Apple has given the world a nice dip to buy.
As the great billionaire investor Bill Ackman puts it, there are times when “high quality businesses can be purchased at a discount” due to investors that “overreact to negative short term corporate and macro factors.” With all of the skittishness about China and the Fed in recent weeks, nothing sounds more relevant to the moment.
But while Apple is a widely loved company and widely loved stock, at BillionairesPortfolio.com we only have interest when we get to invest alongside an influential billionaire investor, and only when there is a catalyst at work that can reprice a stock higher. Apple ticks those boxes, most notably with the very public presence of the greatest billionaire investor of all-time, Carl Icahn.
We know the power of the Icahn Effect on stocks, and he’s proven that in Apple. But additionally, we have three other top billionaire investors and hedge fund managers that initiated a new and significant position in Apple last quarter.
1) Billionaire hedge fund manager David Tepper initiated a new $315 million position in Apple last quarter. It’s now his third largest position representing almost 8% of his hedge fund. Tepper also said last week that Apple is “a cheap stock.”
2) Billionaire Barry Rosenstein, head of the activist hedge fund Jana Partners purchased $31 million in Apple call options last quarter, a highly leveraged bet that Apple will rebound by the end of the year.
3) Philippe Laffont, head of the $10 billion technology focused hedge fund Coatue Management, added 860,000 shares to his already huge Apple position. Apple is now Laffont’s biggest position, more than $1 billion dollars (or 10% of his fund’s assets). Laffont is former “tiger cub” and is considered one of the best technology stock pickers in the hedge fund world.
All three of these hedge fund managers paid a higher prices for their stock, as Apple traded between $120 and $133 last quarter. Today you can buy these billionaires on a dip – Apple sells for $116.
So what’s the catalyst?
Of course, today, the company rolls out new product, and a new phone upgrade plan that is said to result in more revenue and more profit per phone. This new iPhone leasing program should improve Apple’s margins which would value the company at a higher multiple and reprice the stock higher.
Barron’s quotes a top mutual fund manager that is targeting a 50% rise in Apple stock near term and $200-$250 in three to four years.
At Billionairesportfolio.com, we follow the “best ideas” of the world’s top billionaire investors. You don’t have to be rich to take part. You don’t have to pay the hefty 2% management fee and 20% profit share to a hedge fund. You can follow the lead of powerful billionaire investors by simply buying the same stocks they do, in your own brokerage account.
Most energy stocks are trading at historical lows, and many have been priced like stocks in the pipeline for bankruptcy. Even valuations on the major oil companies are trading at a 35-year low relative to the broader market. And it all has to do with the weakness in the price of oil.
But that may be changing, and very soon.
The self-made billionaire energy trader, Boone Pickens, has recently called for $70 by year-end. If he misses, he says it will be because oil is “over $70, not under $70.” He’s not the only oil bull. Another famous and very wealthy energy trader has called a bottom in oil too, and is looking for much higher prices. His name is Andy Hall.
Hall was a Citigroup oil trader who made billions of dollars for the bank energy trading arm, Phibro, in the early-to-mid-2000’s. He was one of the first energy traders to load up on oil futures in 2002, when oil was sub-$30, on the thesis that a boom in demand was coming from China.
Hall reportedly made $800 million in profits for Citigroup in 2005 from his original bullish energy bet. He then made over $1 billion in 2008 for the bank, as oil prices soared to $147 a barrel and then abruptly crashed. Hall profited handsomely from both sides of the trade and earned over $100 million for himself that year.
Hall now runs a $3 billion energy hedge fund, Astenbeck Capital Management. He’s made fortunes pegging bottoms in tops in oil over the past 15 years, and he’s expecting a big bounce back in oil. In a recent letter to investors, he laid out an extensive fundamental case for higher oil prices and suggested a cut from OPEC could be coming as well. On that front, he noted that merely a hint of an OPEC policy change in August of 1986 spiked oil prices by 50% in just 24-hours.
So we have two of the greatest and wealthiest oil traders in the world that are long oil and have called for a return to much higher prices sooner rather than later.
If they are right about the future direction of oil, there will be a lot of money to be made in energy stocks on this bounce. Warren Buffett has famously said a simple rule dictates his buying: “Be fearful when others are greedy, and be greedy when others are fearful.”
This statement shows the mindset of great investors and how they react when markets fall. Instead of running in fear, great investors welcome market corrections as opportunities to buy on the cheap. You don’t get rich buying into a high market or selling into a falling market. You can get rich though, buying into market corrections and beaten-down markets.
At Billionairesportfolio.com we love opportunities like those presented in the energy sector right now. But, we like to have the added protection of investing alongside a billionaire investor that has a lot of money at stake, and the power to influence change.
In this case, not only does billionaire oil magnate Boone Pickens have his money where his mouth is on his oil call, but each of the five energy stocks below are owned by at least one of the world’s great billionaire investors, and each has the potential to double (or more) if Pickens is right about oil at $70 by year-end:
1) SandRidge Energy (SD) – Billionaire investor Prem Watsa owns almost 11% of SandRidge. This stock traded above $4 last November, when oil was $70. That’s 788% higher than its current share price today.
2) Oasis Petroleum (OAS) – Billionaire hedge fund manager John Paulson owns nearly 7% of this stock. Additionally, SPO Advisory, a $7 billion activist hedge fund, owns almost 15% and has been buying the stock on almost every dip. When oil was last $70, OAS was trading $25, or 150 % higher than current levels.
3) Whiting Petroleum (WLL) – Billionaires John Paulson and Andreas Halvorsen, of the hedge fund Viking Global, own a combined 10% of WLL. And the company has officially put itself up for sale! This stock traded at $52 when oil was last at $70. That would be a 205% return from its share price today.
4) Chesapeake Energy (CHK) – Billionaire investor Carl Icahn owns 11% of CHK and recently added to his position around $13. Chesapeake has halted their dividend and said they are looking at selling assets, all of which is bullish for the stock. The last time oil was $70, Chesapeake was $25. That would be a 203% return from its price today.
5) Transocean Energy (RIG) – Billionaire Carl Icahn also owns almost 6% of Transocean. RIG recently reported better than expected earnings this month. The last time oil was $70 Transocean was $24 or almost a 50% return from its share price today.
At Billionairesportfolio.com, we follow the “best ideas” of the world’s top billionaire investors. You don’t have to be rich to take part. You don’t have to pay the hefty 2% management fee and 20% profit share to a hedge fund. You can follow the lead of powerful billionaire investors by simply buying the same stocks they do, in your own brokerage account.
In the past month, U.S. stocks had the biggest one day spike in volatility on record, and while the percentage swing in stocks didn’t rank in the top five of biggest days, it wasn’t far off.
Since then, there have been violent swings across global stocks, and heightened uncertainty about what lies ahead.
Keep in mind, there was a lot of damage to investor psychology in the early days of this decade-long economic downturn. That has created a contingent of investors that have been fearing another shoe to drop.
That fear leads to under participation in stocks, and it also leads to weak hands in the stock market. The “weak hands” are those that may own stocks, but have little conviction (and likely a lot of fear). It’s this dynamic that has created the sharp swings we’ve seen a few times in recent years, and this most recent decline fits the bill. While the current decline was sharper and more extreme than anything we’ve seen since 2008, the reasons are far from the same. Bear markets in stocks are driven by recession or a major economic event that can lead to recession. We have neither.
In the U.S., fundamentals are solid and improving. For those that argue the economy is fragile, the bond market disagrees with you. The yield curve is the best predictor of recessions historically. Yield curve inversions (where short term rates move above longer-term rates) have preceded each of the last seven recessions. Based on this analysis, the below chart from the Cleveland Fed shows the current recession risk at virtually nil.
With no recession risk on the horizon, this dip in stocks looks like yet another valuable buying opportunity. We’ve had seven declines of close to 5% or more in the S&P 500 since late 2012. In each case, the decline was fully recovered in less than two months. In most cases, the decline was recovered inside of one month. This is an amazing fact, yet many people have been trying to pick tops, rather than preparing to buy the dip. We still have global central bank policies that continue to defend against shocks and promote global recovery (from Japan and Europe) and the Fed should continue its plan to slowly remove the crisis-driven emergency policies that have been in place for the better part of 10 years. Moving away from emergency policies is positive! With that, this broad correction looks healthy and could kick off another leg of a strong run for stocks.
Warren Buffett has famously said a simple rule dictates his buying: “Be fearful when others are greedy, and be greedy when others are fearful.” No surprise, he publicly said today that he’s on the prowl to deploy $32 billion of fresh capital to buy stocks on sale.
At Billionairesportfolio.com our specialty is following the lead of billionaire investors. Many will speculate on what Buffett might buy with a fresh $32 billion. But to find stocks on sale, we look no further than his current portfolio. There, we find stocks that have the “wide moat” characteristic Buffett covets. And after the recent sell-off, some have dividend yields higher than treasury bonds, and P/Es well below the market average.
Below are four blue-chip stocks owned by the great Warren Buffett, each of which is cheap, and with a catalyst at work that can reprice the stock higher:
1) American Express (AXP) is one of Buffett’s “four horseman,” yet American Express is down 20% over the past year, leaving it with a current P/E of only 13. Recently one of the top activist hedge funds, ValueAct Capital (an $18 billion hedge fund run by Jeffrey Ubben) took a $1 billion position in AXP. ValueAct takes a private equity approach to investing and many are predicting that ValueAct will shake up the current management of American Express. The last blue chip stock ValueAct targeted, Microsoft, is up almost 50% since ValueAct took a position — a good sign for American Express investors.
2) IBM (IBM) is another one of Buffett’s core holdings. Buffett owns 8% of IBM or almost $13 billion worth. Right now you can buy IBM at a much cheaper price than Buffett paid for his shares (Buffett paid around $162). Buffett rarely makes mistakes, so this is a once in a lifetime opportunity being able to buy Buffett at a discount. IBM is also dirt cheap with a P/E of 9 (almost half the P/E of the S&P 500) and has a dividend of 3.6%, well above the current yield on the 10-year Treasury note. The stock is so cheap any positive news could send IBM flying. Earnings could be the big catalyst for this stock. They report in October.
3) Wal-Mart (WMT) – Buffett currently owns more than $4 billion of Wal-Mart. The stock is down 24% in 2015. It trades at only 13 time earnings with a dividend yield of 3%. One could argue Wal-Mart is the cheapest “blue chip stock” at a price-to-sales of .42 (the lowest of any Dow component). Consumer discretionary is the strongest sector in the market this year, the only sector that has a positive gain for the year. With unemployment nearing “normal” levels, and with gasoline prices at 11-year lows it is only a matter of time before consumers start spending more, and Wal-Mart is usually one of the biggest beneficiaries of this trend.
4) General Electric (GE) is another large Buffet stake that has a huge dividend (3.8%) and sells for a forward P/E of 15. The real catalyst with GE is that the company expects to return a whopping $90 billion to shareholders over the next couple of years, which will mean a dividend increase and a stock buyback, all positive catalyst’s to reprice GE higher in the future.
To follow the hand-selected stock picks of the world’s best billionaire investors, subscribe at BillionairesPortfolio.com.
At Billionairesportfolio.com, we’ve been studying the buying patterns of the world’s greatest billionaire investors and hedge funds for the past 15 years. So when two of greatest billionaire investors in the world, Carl Icahn and Warren Buffett, purchased almost $7 billion worth of energy stocks over the past couple of weeks, we paid close attention.
We know two things about Buffett and Icahn: 1) they have made billions throughout their careers buying when everyone else is selling, and 2) they have a knack for picking the winners, the stocks and sectors, and marking the bottom when they enter.
Their respective records are especially remarkable in times when widespread fear and doubt is in the air. For example, Icahn marked the bottom in technology stocks in the fall of 2012 with his 10% position in Netflix. He made $2 billion in profits on the trade, a nearly 1,000% return. Buffett marked the bottom in bank stocks in the fall of 2011 when he initiated a $5 billion position in Bank of America. That investment has almost tripled in price since, producing nearly $10 billion in open profits for Buffett.
Now, it’s typical in market environments like this to hear from experts that warn against picking tops and bottoms. But contrary to the Wall Street adages against market timing, the two best investors of all-time have amassed two of the largest personal fortunes in the world by (as Buffett says) “being greedy while others are fearful.” And they are stepping in again, this time in the energy sector.
Let’s look at the newest energy investments from this billionaire duo:
1) Phillips 66 (PSX) – Buffett revealed last week he has taken a $4.5 billon position in the energy stock Phillips 66. This is a typical Buffett stock. It sells for just 10 times earnings, a huge discount to the S&P 500’s P/E of 17, and the stock pays nearly 3% in a dividend. Furthermore, the company has a pristine balance sheet, with very little debt – a classic Buffett stock, cheap and safe.
2) Freeport McMoran (FCX) – Carl Icahn bought nearly $1 billion of Freeport McMoran last week, at much higher prices than it’s selling for today. Icahn’s cost basis for FCX is roughly $12 a share, or more than a 20% discount from its current share price. Freeport McMoran is not only one of the world’s largest copper producers, but it also a huge reserves with almost 400 million barrels in oil equivalents. Freeport is one of the cheapest companies in the S&P 500, with a price-to-book of .80 and a forward price to earnings of just 6. It’s also one of a handful of S&P 500 constituents with a share price below $10.
3) Cheniere Energy (LNG) – Carl Icahn also initiated a $1.3 billion position in energy stock LNG just a couple of weeks ago. Cheniere is on track to become the first U.S. company able to export liquefied natural gas. This makes LNG a classic “wide moat” (no competition) stock. Icahn has already secured two board seats on Cheniere’s board. Icahn’s “board seat effect” has proven to be a huge predictor of success for the legendary activist. According to an essay Icahn penned last year, when he gets a board seat in a company, his stock returns averages 27.5%.
In the face of all of the fear and confusion surrounding China’s sharp stock market decline in June, and the recent moves by its central bank to weaken the Chinese currency, one billionaire has been using the opportunity to load up on Chinese stocks.
His name is Chase Coleman. He runs Tiger Global, a hedge fund that was seeded by billionaire Julian Robertson.
Few have had the performance over the past fifteen years that can compare to Coleman’s. According to an investor letter from Tiger Global, his hedge fund has returned 21% annualized on long positions since 2001. That compares to a 4.5% annualized return for the S&P 500. This run has made Coleman a billionaire before the age of 40.
Not only does Coleman have more than 20% of his hedge fund invested in Chinese companies, but he has been aggressively building those big stakes over the past two months as China’s stock market slid.
At Billionairesportfolio.com, our strategy is rooted in following the moves of the world’s best billionaire investors. This strategy can be even more powerful when we are able to “buy the billionaire on a dip.” In all of five of the stocks listed below, we can follow the wunderkind billionaire hedge funder, Chase Coleman’s lead, into his plays on China. In three of the stocks, we can buy them cheaper than the price Coleman paid for his shares.
1) JD.Com (JD)- JD.com is currently Chase Coleman’s biggest position in his hedge fund, making up nearly 7% of the fund. This stock has been slammed recently, which offers an attractive entry point into one of the fastest growing e-commerce stocks in China.
2) Alibaba (BABA) – Coleman has 6% of his hedge fund invested in Alibaba. Alibaba was hit hard on a weaker earnings report today, but is a dominant company in China, with huge potential growth. Baba shares are 40% off of the highs of just nine months ago, and trading cheaper than where Coleman bought his shares.
3) Vipshop Holding (VIPS) – This is Coleman’s third largest position in China and he is down on his investment. VIPS also happens to be one of billionaire hedge fund manager John Burbank’s top positions at his fund Passport Capital. VIPS has been a highly volatile stock, going from $19 to $30 this year and back to $19 today.
4) 58.com (WUBA)- In recent weeks, while the rest of the world was panicking about China’s stock market volatility, Chase Coleman added to his positon of the Chinese internet company, 58.com, and now owns more than 6.3% of the company. WUBA sold for $83 just months ago, and now trades at $51, offering huge upside if the stock bottoms here.
5) eHi Car Services (EHIC)- In June, Coleman and Tiger Global initiated a brand new position, (21.5% ownership) in EHIC, the “Uber of China.” He is now down on this position, so you are able to buy eHi at a cheaper price than one of the best hedge fund managers on the planet.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 27% gain since 2012.
Overnight, China openly devalued its currency. And it may be only the first step in a return to the “weak currency” policies that catapulted its economy to one of the biggest in the world. Such a policy reversal would have huge implications for Chinese stocks, and the geopolitical landscape.
China has slowly and modestly appreciated its currency (vis a vis the dollar) over the past decade, in compliance with the pressures from major trading partners and global economic leaders (namely the U.S.). As a result, China’s economy has slowed, its exports have fallen in competitiveness and Chinese leadership is under pressure.
Additionally, since late 2012, Japan has delivered a massive blow to China through its outright devaluation of the Japanese yen. Japanese goods have become 40% cheaper than Chinese goods, on a relative currency basis, since Japan first telegraphed its massive QE and yen devaluation plans. Japanese growth in exports have nearly doubled that of China over the past three years.
With that, it’s no surprise that China is beginning to fight back.
Longer term, a return to weaker currency, in an effort to reclaim its global export dominance, would create major political turbulence with its leading trading partners. But short term, it could give China’s economy and its stock market a huge shot in the arm.
At BillionairesPortfolio.com, we like to follow the lead of billionaire investors that have large stakes in companies and, as such, the ability to influence outcomes.
Below are five U.S. exchange traded Chinese stocks, each owned by top U.S. billionaire investors:
1) eHI Car Services (EHIC) – Billionaire Chase Coleman of Tiger Global recently initiated a 21.5% stake in EHIC in June. eHi Car is considered the “Uber” of China. The stock hit a high of $19 this year and currently trades at $11.45. A return to its 2015 highs from here would mean a 65% return.
2) JD.Com (JD) – Billionaire Steven Mandel, who runs the hedge fund Lone Pine Capital, owns nearly 3% of JD.com, or almost $900 million worth. JD.com has been called the “Ebay” of China.
3) Alibaba (BABA) – Alibaba is a billionaire hedge fund hotel. Billionaires’ Julian Robertson, Chase Coleman and George Soros all own Alibaba. BABA is billionaire Julian Robertson’s second largest position. The stock’s 52-week high is $120 or 53% higher than its share price today. Alibaba reports its highly anticipated earnings on Wednesday, August 12th.
4) Baidu (BIDU) – Baidu is another stock that is a Billionaire hedge fund hotel. Billionaires Stephen Mandel, Julian Robertson and George Soros all own Baidu. Baidu sold as high as $251.99 over the past year — about 50% higher than current levels.
5) iShares China Large Cap ETF (FXI) – Billionaire Louis Bacon who runs the top performing global macro hedge fund, Moore Capital, recently added to his nearly $200 million position in FXI. The exchange traded fund, FXI, is one of the most liquid and diverse ways to get exposure to Chinese stocks.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 27% gain since 2012.
With the overhang of Greece finally lifting, there are several reasons to be optimistic about the potential for a nice run in stocks through the second half.
For the quarter ending in June, the S&P 500 posted its worst quarter since 2010. It just so happens that the pressure on stocks back in the first half of that year, like this year, was due to the potential default of Greece. As we know, Greece was bailed out by the IMF, ECB and Euro partners in 2010. And in the second half of that year, the S&P 500 rallied from down 7% to up 15% by year end.
The Russell 2000 was down 6% for the year through July of 2010. Over the next five months it rallied 34 percentage points to finish UP 27% on the year.
What about energy? Another drag on sentiment in 2010 was the Gulf Oil Spill. Energy stocks were smashed. After being down 12% in the first half of 2010, the
XLE (the energy ETF tied to a basket of energy stocks) returned 34% off the bottom and 22% for the year.
Also consider this: According to research done by Guggenheim Partners, in the five months leading up to a Fed tightening cycle, stocks have historically rallied 9%. We’re well behind on that timeline at this point. That creates a scenario where we could see a very sharp rally to catch up.
What about valuations?
The consensus earnings forecast for the S&P 500 for 2016 is $126. At the current P/E multiple for stocks, it projects a move to 2,709 in the S&P by next year (P/E of 21 x earnings of $126 = 2,646). That’s 26% higher than current levels.
What if the economy sours?
The best predictor of recessions historically has been the spread (the difference) between the 10-year Treasury bond rate and the 3-month T-bill rate. That measure is showing the probability of a recession next year at around three percent — virtually nil.
So we have some very compelling reasons to be excited about the backdrop for stocks into the second half of the year, especially when we consider that central banks need stocks to continue higher. With that said, the Fed remains extremely accommodative, even if they do make their first rate hike in nine years in the coming months. The ECB and BOJ continue to provide fuel for global stocks through their massive QE programs.
