By Bryan Rich

April 2, 7:00 pm EST

As we’ve discussed, the proxy on the “tech dominance” trade is Amazon.  That’s the proxy on the stock market too.  And it’s not going well.  The President hammered Amazon again over the weekend, and again this morning.

Here’s what he said …

Remember, we had this beautiful heads-up on March 13, with the reversal signal in Amazon.

That signal we discussed in my March 13 note has now predicted this 15.8% decline in the fourth largest publicly traded company.  And it’s dictating the continued correction in the broader market.

If you’re a loyal reader of this daily note, you’ll know we’ve been discussing this theme for the better part of the last year.  The regulatory screws are tightening.  And the tech giants, which have been priced as if they are, or would become, perfect monopolies, are now in the early stages of repricing for a world that might have more rules to follow, hurdles to overcome and a resurrection of the competition they’ve nearly destroyed.

As we know, Uber has run into bans in key markets. We’ve had the repeal of “net neutrality” which may ultimate lead big platforms like Google, Twitter, Facebook and Uber, to transparency of their practices and accountability for the actions of its users.  Trump is going after Amazon, as a monopoly and harmful to the economy.  Tesla, a money burning company, is being scrutinized for its inability to mass produce — to deliver on promises.  For Tesla, if sentiment turns and people become unwilling to continue plowing money into a company that’s lost $6 billion over the past five years (while contributing to the $18 billion wealth of its CEO), it’s game over.

With that said, this all creates the prospects for a big bounce back in those industries that have been damaged by tech “disruption.”  And this should make a stock market recovery much more broad-based than we’ve seen.

With the sharp decline in stocks today, we’ve retested and broken the 200-day moving average in the S&P 500.  And we close, sitting on this huge trendline that describes the rise in stocks from the oil-crash induced lows of 2016.

Today we neared the lows of the sharp February decline.  I suspect we’ll bottom out near here and begin the recovery.  And that recovery should be fueled by very good Q1 earnings and a good growth number — brought to us by the big tax cuts.

If you are hunting for the right stocks to buy on this dip, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers. 

 

By Bryan Rich

March 27, 4:00 pm EST

The sharp swings continue in stocks, with the bias toward the downside.  And as we’ve discussed over the past two weeks, it’s all led by the tech giants.  Remember, on Friday we looked at the most important chart in the stock market: the chart of Amazon (as a proxy on the tech giants).  Early this afternoon, Amazon was outpacing the S&P 500 to the downside by 4-to-1, and finally the broader market cracked to follow it.

This all continues to look like the market is beginning to price in a world where the tech giants, that have taken dangerously significant market share over the past decade, are on the path of tighter regulation and a leveling of the playing field, which will result in higher costs of doing business.  That will change their position of strength and open the door to a resurrection of the competition.

Remember, on the stock slide of this past Friday, the S&P 500 hit the 200-day moving average and bounced sharply.  It now looks like we’ll get another test of it, probably a break, and maybe take another peak at the February lows.

Here’s a look at the chart ….


You can see in the chart above the technical significance of these levels.  This represents the trend from the oil price induced lows of 2016.  And the slope of this trend incorporates the optimism from the Trump election and the outlook on pro-growth policies.

With that significance at play, a breach of this support, at least for a short time, would all play into the scenario that we’ll see more swings in stocks (pain for the bulls) until we get to earnings season, which kicks into gear on April 13.  And as we discussed, that should begin the data-driven catalyst for stocks (earnings and growth, fueled by fiscal stimulus).

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio subscription service, where you look over my shoulder as I follow the world’s best investors into their best stocks.  Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years.  You can join me here for the best stocks to buy in this market correction.

By Bryan Rich

March 22, 9:00 pm EST

Stocks were down big today.  The media will have fun touting the Dow’s 700-point loss.  But while 700 points has good shock value, on a Dow at 24,000, it’s not what it used to be.

Still, as we’ve discussed, the media and Wall Street are programmed to fit a story to the price.  And there are no shortages of potential risks to point to when stocks fall.  We have trade posturing in Washington. We have a Fed that’s in a tough position, trying to balance a bullish view on growth with the perception that rising rates could choke off that growth.  And we have more regulatory scrutiny growing against the tech giants — with Facebook being the latest in the hot seat.

All of that sounds like bad news.  But we also have corporate earnings on pace to grow at nearly 20% this year.  And that could be an undershoot, given the inability of Wall Street to calibrate the effects of tax cuts on demand.  And we have a big trillion-dollar plus infrastructure plan coming down the pike too.  This is all as consumers are in as healthy a position as we’ve seen in more than a decade.

But what about a trade war?  Doesn’t that threaten the earnings and growth outlook.  Not more than nuclear war.  And that was, in the public perception, probably as much of a risk last year, as a trade war is now.  Stocks went up 20% last year.

Most importantly, we’ve discussed the merits of fighting China’s currency manipulation. If we don’t, we (and the rest of the world) are destined to repeat the cycles of credit booms and busts, with a persistent wealth drain along the way.

It has to be done.  And it’s best done when there is leverage.  And there is leverage now, as our economic recovery has the chance to lift the global economy out of the rut of the post-crisis stagnation (i.e. everyone needs our fiscal stimulus-driven recovery to work, including China).

Now, as we’ve discussed for quite some time:  Markets will correct, as they have.  And corrections are a gift to buy stocks on sale.  But we won’t likely see a resumption of the long-term trend higher in stocks (and likely new highs by year end) until we start seeing hard evidence that fiscal stimulus is working.  And we’ll see that in earnings and growth data, much of which is still a month out.

With all of this said, we pointed last week to the signals that predicted this latest down-leg.  It was the big technical reversal signals across the tech heavyweights: Amazon, Apple and Microsoft.  Those three stocks led the bounce from the February lows.  And those three stocks have predicted this slide and maybe retest back toward the February lows.

What may be the real casualty left from this correction in stocks, when it’s all said and done?  It may be those tech giants.  As we’ve discussed, the heyday of crushing competition with the advantage of little-to-no regulation, are probably coming to an end.  That will change the way these companies (Facebook, Amazon, Google, Uber, Airbnb, etc) operate.

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio subscription service, where you look over my shoulder as I follow the world’s best investors into their best stocks.  Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years.  You can join me here for the best stocks to buy in this market correction.

By Bryan Rich

March 13, 5:00 pm EST

We talked yesterday about the important inflation data. That was in line this morning.  And with that, the big 3% level on the benchmark 10-year government bond yield remains well preserved.

But stocks soured anyway on the day, and it was led by the Nasdaq.

Let’s take a closer look at the Nasdaq.

This is where the big tech giants, Apple, Microsoft and Amazon have led the charge back in the index back to new record highs over the past couple of days.  Those three stocks represent about a third of the index (and contribute heavily to the S&P 500 too).

But as the three tech giants led the way up, they cracked today, and we now have some very compelling signals that another down leg for stocks may be here.

First, as the broader financial markets are still licking the wounds of the sharp correction, and still jittery, Apple hit a record high valuation of $925 billion this week (sniffing near the trillion dollar valuation mark).  And then it did this today…

As you can see in this chart above, Apple put in a huge bearish reversal signal (an outside day).

So did Microsoft (a huge bearish reversal signal).

So did Amazon, after breaching record levels of $1600 over the past two days …

And, not surprisingly, same is said for the Nasdaq – a big reversal signal…

The S&P 500 had the same reversal pattern.

For perspective, if we avoided the distraction of the big cap weighted indices, the Dow chart tells us the downtrend in stocks from the late January highs remains well intact.

If you are hunting for the right stocks to buy on this dip, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers.

By Bryan Rich

March 7, 3:00 pm EST

As we discussed yesterday, stocks have fully recovered the decline that people were attributing to Trump’s trade barrier announcement last week.

With that, the tariff hysteria seems to have subsided a bit, as they struggle for evidence to support their hyperbole.  Perhaps people may start acknowledging that we are now in a higher volatility environment, and that we will be slowly working out of this recent price correction until corporate earnings and economic growth data start confirming the benefits of tax cuts.

Interestingly, they seem to hate the trade threat, far more than the love the tax incentives and the pro-growth initiatives.  And while trade is a complicated issue, everyone seems to suddenly have an expert opinion on it.  And everyone is an expert on the Smoot-Hawley Act (which, by the way was a tariff on over 20,000 goods) and depression-era economics.

If they indeed were reflective about the economy, I think they would agree that we (and the world) desperately need growth initiatives to save us from terminal central bank life support (which wouldn’t be so terminal given they have fired all of their bullets to keep us afloat as long as they did).  And they would know that we are in for a perpetual cycle of booms and busts (repeat of the credit bubble and burst) if the trade imbalances (mainly between China overproducing and the U.S. overconsuming) ultimately are not corrected.

Now, as more of the conversation on trade turns more toward China, I want to revisit an excerpt from my note in December of 2016 (when Trump was President-elect):

MONDAY, DECEMBER 19, 2016 — “While many think Trump will provoke a military conflict, that’s far from a certainty.  With the credibility to act, however, Trump’s tough talk on China creates leverage.  And from that leverage, there may be a path to a mutually beneficial agreement, where the U.S. can win in trade with China, and China can win.  But it may get uglier before it gets better. In the end, growth solves a lot of problems.  A hotter growing U.S. economy (driven by reform and fiscal stimulus), will ultimately drive much better growth in the global economy.  And China has a lot to gain from both. Though in a fair-trade environment, they won’t get as much of the pie as they’ve gotten over the past two decades. But it has the chance of leading to a more balanced and sustainable economy in China, which would also be a win for everyone.”

Now, why not just focus on China now?  Because they will continue to abuse other countries. And those open trade channels will still allow that product to enter the U.S.  As we discussed yesterday, the global economy has been damaged by China’s currency/trade policy, yet the rest of the world has been relying on the U.S. to lead the fight.  They need to join the fight to create the leverage to make it ultimately work – so that the global economy can find a sustainable path of recovery and robust growth.

If you are hunting for the right stocks to buy on this dip, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers.

By Bryan Rich

February 27, 4:00 pm EST

As we discussed yesterday, the minutes from the most recent Fed meeting (which was still under Yellen) gave us some clues about the tone of a Powell-led Fed.  They acknowledged the lift they expected from fiscal policy, which we didn’t hear all of last year, despite the clear telegraphing of it from the Trump administration. Powell was Trump appointed.  And it looks like the Fed messaging will now reflect that.

This is from his prepared remarks today:

“The economic outlook remains strong. The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment. Moreover, fiscal policy is becoming more stimulative. In this environment, we anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC’s 2 percent objective over the medium term. Wages should increase at a faster pace as well.”

So he’s bullish on economic output, wage growth and therefore, inflation. That’s bullish for rates.  And, for the moment, what’s bullish for rates is bearish for stocks.

Oddly, on the same day Powell had his first testimony to Congress, the two former Fed chairs (Bernanke and Yellen) thought it was acceptable to host a chat about monetary policy this afternoon at the Brookings Institute.

It looked a bit like a partisan counter-punch. The same two former Fed Chairs that were, not long ago, begging Congress for fiscal stimulus to take some of the burden off of monetary policy, continue to (now) criticize the move.  In fact, in Powell’s statement, he called the lack of fiscal response from Congress in past years, a headwind:  “some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, fiscal policy has become more stimulative.”

The takeaway from our first look at Powell:  He doesn’t sound like a guy that will risk choking off the benefits of fiscal stimulus with overly aggressive “normalization” of monetary policy. That’s good.

If you are hunting for the right stocks to buy on this dip, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers. You can add these stocks at a nice discount to where they were trading just a week ago.

By Bryan Rich

February 19, 8:00 pm EST

With the big decline and wild swings in the stock market, earnings season has gotten little attention.

We’ve now heard from 80% of the companies in the S&P 500 on Q4. According to FactSet, 75% of the companies have beat on earnings. And 78% have had positive revenue surprises.

Now, earnings estimates are made to be broken. And they tend to be beaten at a rate of about 70% of the time. But the same cannot be said for revenues. This has been a key missing piece in the economic recovery. Companies have been cutting costs, refinancing and trimming headcount, all in an effort to manufacture margins and profitability. But revenues, the true gauge of business activity and demand, had been dead for the better part of the past decade.

It was just last year that we finally saw some decent revenue growth coming in from the earnings reports. And this most recent quarter, revenue growth is running at the hottest rate since FactSet has been keeping records. That’s a very good sign for the economic outlook.

And corporate earnings are running 15.2% higher than the same period the year prior. That’s the hottest earnings growth we’ve seen since 2011. More importantly, that’s four percentage points higher than analysts were projecting at the end of the year–with knowledge of the tax cut legislation.

With that said, remember, just last Friday, we had a moment during the day when the forward P/E on the S&P 500 hit 16.2. But if the fourth quarter is any indication, those forward earnings (estimates) will likely get ratcheted UP over the coming quarters, but will still undershoot. That will keep downward pressure on the P/E. Stocks are cheap.

If you are hunting for the right stocks to buy, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers. You can add these stocks at a nice discount to where they were trading just a week ago.

By Bryan Rich

February 13, 7:00 pm EST

On Friday, stocks bottomed into two big technical levels: 1) the two-year rising trendline that represented the recovery from the lows of 2016, which were induced by the oil price crash, and 2) the 200-day moving average.

We’ve since seen a 5.5% bounce off of the bottom.

Interestingly, the market that has had so many people concerned over the past two weeks–interest rates–were tame and lower on the day. But only after printing a new high (at 2.90%, which is the highest since January of 2014).

That climb in rates, of course, has had everyone uptight about the inflation outlook. But the market you would expect to reflect inflation fears hasn’t been telling the inflation story at all. I’m talking about the price of gold. And gold has been lower, not higher, since stocks have fallen.

Here’s a look at that chart …

With this in mind, the psychology always changes when stocks go down. People search for stories to fit the price–for trouble to fit the price. Even some of the more rational market practitioners were succumbing to this over the weekend, trying to conjure up a negative scenario unfolding for markets.

Having been involved in markets for 20 years, I’ve seen, within both short- and long-term cycles, thousands of turning points, trend changes, phases of a cycles, trends and corrections of trends. Markets can and do have technical corrections. And they can and do correct for no reason, other than price.

So, for perspective, things are good. We will have the hottest economy this year that we’ve seen in a decade. The benchmark 10-year yield, at 2.90%, remains very low relative to history. That means, although borrowing costs are ticking higher, money is still cheap. Gas is cheap. Consumer and corporate balance sheets are as good as they’ve been in a long time. And we’ve just gotten a blue light special on stocks–marking down prices from 18 times to something closer to 16 times earnings. And with the prospects for earnings to come in better than expected, given influence of tax cuts, we are probably looking at a P/E on the S&P 500 forward earnings closer to 15.

If you are hunting for the right stocks to buy, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers. You can add these stocks at a nice discount to where they were trading just a week ago.

NYSE:GLD, NYSE:GG, NYSE:WFC, NYSE:BAC, NYSE:NEM, NYSE:SPY

By Bryan Rich

February 11, 7:00 pm EST

Two weeks ago there were signals that a correction was underway.  First we had a swing back into positive yield territory for the German 5-year government bond. That was a significant marker for the end of the negative interest rate era and the end of global QE.

And with the outlook for rate normalization formalizing in the market, we should expect stock market growth to be driven from that point by earnings and dividends, and therefore economic growth. And then we had a perfect trigger lining up to set off the correction: earnings from the big tech giants. On script, Google missed. Apple disappointed on guidance, and the broad market sell-off began.

With that, when stocks broke down on February 2nd, we remembered that the stock market has had about a 10% decline on average, about once a year, over the past 70 years.

Then on Monday, the sell-off accelerated, and for a target in the S&P 500 we looked at this chart, which projected a reasonable spot to think we might find a bottom–around 2,560. We hit that on Friday and traded through to the 200-day moving average (2,539)–and we got an aggressive bounce.

Now, I’ve said a decline like this would make stocks cheap–“maybe something closer to 15 times forward earnings.” That sounded crazy two weeks ago. But guess what? We’re pretty darn close. At the lows on Friday, the P/E on earnings forecasted over the next four quarters was 16.2!

But as we know, Wall Street has a long history of underestimating earnings. That’s why about 70% of companies beat on earnings every quarter. And in this case, we’re talking about a huge earnings bump coming in the first quarter from the tax cuts. And Wall Street has barely bumped earnings expectations to incorporate that.

As said earlier this week, when the tax cut was in proposal stages, Citigroup estimated it would add $2 to S&P 500 earnings for every 1 percentage point cut in the tax rate. We’ve gone from 35% to 21%. With that, the forward four-quarter estimate for S&P 500 earnings, before the tax bill (in late November) was around $142.

If we add $28 in tax savings, we get $170. At the lows today in the S&P 500 that puts the P/E on a $170 in S&P 500 forward earnings at 14.8! That’s cheap relative to the long run historical P/E on stocks. And it’s extremely cheap in a world of low rates. And rates are still very low relative to history. And the low-rate environment will continue to motivate investors to seek higher returns in stocks–and pay higher valuations as stocks rebound. With hotter earnings and multiple expansion from here, we could reasonably see a 20%-30% rebound in stocks by year end.

Remember, the psychology always changes when stocks go down. People search for stories to fit the price–for trouble to fit the price. Rather than one of these stories leading to another major fallout, it’s a much higher probability that we are in the early innings of an economic boom, and stocks will be much higher than here in a year’s time.  It’s time to be greedy while others are getting fearful.

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years. You can join me here and get positioned for a big 2018.

By Bryan Rich

February 5, 7:00 pm EST

We talked last week about the correction underway in stocks. As I said, since 1946, the S&P 500 has had a 10% decline about once a year. And we haven’t had one in a while. Since the November 2016 election, the worst decline in stocks from peak to trough had been only 3.4%.

So we were due. And we’ve gotten it.

Today we’ve seen it accelerate. With the steep slide in stocks today, for a brief moment, the Dow futures were down 11% from the peak of just 7 days ago.

Now, let’s add a little perspective on this …

First, as I’ve said, when you are a hedge fund or trader and you’re leveraged 10, 20, 50, 100 times, then avoiding corrections or trend changes is critical to your survival. Getting it wrong, can mean your portfolio blows up and maybe goes to zero. That’s the mentality the media is speaking to, and frankly much of Wall Street is speaking to, when addressing any market decline.

The bottom line is that 99.9% of investors aren’t leveraged and should have no concern about U.S. stock market declines, other than saying to themselves: “What a gift! Do I have cash I can put to work at these cheaper prices? And, where should I put that cash to work?”  As the great Warren Buffett has said, “be greedy when others are fearful.”

So, for the average investor, dips are an opportunity to buy stocks at a discount. Don’t let the noise distract you.

Remember, we’ve talked about the transition that is underway, with a global economy that now has the potential to officially exit the economic slog of the past decade, driven by pro-growth policies in the U.S. And those economic tailwinds have introduced the likelihood that the world will finally be able to exit central bank life support (i.e. QE). That’s all very positive.

But it has also been the trigger of the correction in stocks–this transition. QE has promoted higher stock prices. Now we get a correction, and a new catalyst (earnings and the growth picture) to justify the next leg of the global economic recovery (and stock bull market).

With that in mind, the fundamentals for stocks are very strong. As stocks tick down, the better valuation on stocks will only be amplified, when we get hot first quarter earnings hitting in a few months (thanks to the big corporate tax cut). For the S&P 500 P/E: We have the “P” going down, and the “E” going up.

How long could this correction last?

Remember when we were discussing the probability of a correction back in November, we looked at this chart …

In September 2014, with no significant one event or catalyst prompting it, the S&P 500 went on a slide. Stocks closed on a record high on Friday, September 19 (2014). On Monday, stocks gapped lower and over the next 18 days fell 10%. But over the following 12 days it all came back–a sharp V-shaped recovery. It was a textbook technical correction–right at 10%, right into the prevailing trend. You can see it in the chart above: the v-shaped move in stocks, and the bounce right off of the big trendline.

What’s happened in the markets the last few days reminds me of that correction. The moves can be fast, and the recovery can be fast, in this (post-crisis) environment. Big institutions have been trading stocks through computer programs for a long time, but the speed at which these algorithms can access markets and information have changed dramatically over the past decade–so has the massive amount of assets deployed through high frequency trading programs. They can remove liquidity very quickly. Combine that with the reduced liquidity in markets that has resulted from the global financial crisis (i.e. the shrinkage of the marketing making community and of hedge fund speculators, and the banning of bank prop trading) and you get markets that can go down very fast. And you get markets that can go up very fast too.

The proliferation of ETFs exacerbates this dynamic. ETFs give average investors access to immediate execution, which turns investors into reactive traders. Selling begets selling. And buying begets buying.

With the above dynamic, we’ve seen a fair share of quick declines and quick recoveries in the post-financial crisis era.

How do things look now?

In the chart above, this big trend line represents the move off of the oil crash lows of 2016. This 2560 area would give us a 10.8% correction in the S&P 500. I wouldn’t be surprised if we got there over a few days, and a recovery began. And I expect to stocks to end the year up double digits (still).

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years. You can join me here and get positioned for a big 2018.