I had a great call this morning with my colleagues Amber Lancaster and Ian Dyer.
Below, you’ll find a recording of this morning’s chat. Simply click on the “play” button to listen.
January 14, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly and Ian Dyer. Each week we look forward to sharing our viewpoints with you, our readers, and giving you insight into what’s on our radar. I’ll begin with sharing with you what I’m watching, and then we’ll hear from Ian and Paul.
Today, my talk will be macroeconomic in nature.
First off, the ongoing U.S. partial government shutdown is now the longest in modern U.S. history. Approximately 800,000 Federal employees did not receive a paycheck this Friday. The Trump administration and Congressional democrats remain locked in a standoff. It’s being reported that President Trump’s budget team may be composing a contingency plan for a shutdown that may extend through the end of February.
It’s worth noting that in the midst of the partial government shutdown, U.S. equities just finished three consecutive weeks of gains while Fed chair Jerome Powell is indicating the anticipation of a positive outcome with the China U.S. trade negotiations and a more dovish outlook on interest rates.
Economists overall are projecting two interest rate increases in 2019 — in June and December — versus three hikes.
Where U.S. economic data releases are concerned, we can expect to see December’s industrial production print on Friday. The consensus is expecting a step up in manufacturing output. Meanwhile, the partial government shutdown may impede the results for retail sales and housing starts this week.
Focusing on the jobs front, something really caught my eye. A Bloomberg report regarding millennial woman and how they’re pouring into the U.S. labor force. The participation rate for 25- to 35-year-old women is up to 2000’s level. This is great news for the U.S. economy as an increase of workers gives overall production more room to grow.
Per Bloomberg, there’s a new Bankrate.com survey and report that found millennials are more optimistic about 2019 than older Americans. Nearly 60% of 18 to 37 year olds surveyed expect finances to improve this year compared to just 35% for their elders.
Lastly, I’d like to share an interesting piece I caught in the Australian Financial Review today titled, U.S. Equities Aren’t Signaling a Recession. The article focuses on how the rout in equities through December’s quarter weren’t forecasting an eminent U.S. recession but rather a buy signal.
New York strategist and market bull Edward Yardeni, of which I’ve been following for some time now, is quoted as saying:
“There’s still no recession evident in Atlanta Fed’s GDPNow forecasting model or in our forecast for this year. The most hated bull market in history has had frequent panic attacks on fears that the most widely anticipated recession in history is imminent. They were followed by relief rallies when the downturns didn’t happen.
“While some of the latest data may be raising the odds of a recession, they are also raising the odds that our ‘data-dependent’ Fed won’t be raising interest rates in 2019, and might actually have to lower them, which would lower the odds of a recession and quickly reverse any flash recession that might be out there.”
So with that, Ian, what are you watching this week?
Ian Dyer: Thanks, Amber.
I want to start out this week by giving a recap of what’s been going on so far this year in the stock market. Specifically, last week we saw the Russell 2000, which is comprised of small-cap stocks and high-growth companies that are more speculative. We saw that index was up 4.73% just last week. This was almost double what the S&P 500 returned, which was 2.61%.
We’re seeing people jump right back into these growth stocks, which is a great sign going forward because growth stocks tend to lead whatever the next market move is. People buying up these stocks shows that appetite for risk is back. It’s a great sign for the overall market.
Another sign I wanted to talk about for a moment is the VIX or volatility index, which is down 50% since Christmas Eve. We’re down to 18 right now as the overall level of the VIX. This measures how much investors are hedging their portfolios. It measures the option premiums on the S&P 500.
When this is higher, more people are crowding into options in their portfolios. So it was up around 36 on Christmas Eve and last Friday we saw it close around 18. These are both great signs for the market going forward. It shows that the panic is coming to an end and we should be seeing market gains over the next few months.
Another thing that is huge and coming up right now is earnings season. Today, the 14th, is really kicking it off. We’re going to see a lot of huge companies reporting earnings over the next few weeks.
I believe that a lot of bad things have been priced into the market recently that aren’t necessarily true. One of those things is a huge slowdown in companies’ earnings growth. I think this earnings season is going to show us that the companies are still growing.
We had huge holiday sales by some of the biggest companies in the world. Walmart and Amazon broke records for sales this past holiday season. We’ve also seen very optimistic news from industrial production companies like Caterpillar, which is the leading production company in the world. We’ve also seen positive comments from real estate companies.
I think the underlyings of the economy are still growing well and I think we’ll see better-than-expected earnings over the next couple months.
Amber: Great. Thank you, Ian. Paul, tell us what you’re watching this week.
Paul Mampilly: Thanks, Amber.
I just finished the Profits Unlimited update and I focused on many of the things you guys are leading to. In particular, I talked in the update about while I was laid up in bed sick the last couple days, the YouTube coverage of the consumer electronics show.
What you saw there would make you incredibly optimistic — just thrilled — with our portfolio in Profits Unlimited. If you took a virtual tour of CES you would see a ton of internet of things devices. Every single thing was connected to the internet.
There were so many things with AI embedded. Artificial intelligence, another one of our megatrends. There were so many different kinds of robots — your head would spin. When you think about it, if you were to do a little x-ray, you would say those are our chip companies that are going to be making a ton of sales.
What matters for chip companies is volume because these are companies that build on scale. They make their money on scale. You’d be thrilled based on what is being shown as CES for our chip companies.
I also mentioned it and made it a big part of Bold Profits Daily, where I actually recommend a chip ETF. So check out that when it comes out as well. That’s observation number one.
Then, like Ian, I’m also seeing lots of signs that it looks like stock investors started to panic about industrial growth somewhere in the early part of 2018. They sold a lot of stocks down. We owned, in Profits Unlimited, a number of these and we sold some of them. Actually, we sold virtually all of them.
Then we started to buy them back into the selloff. In fact, this morning I saw something from a large German company that an industrial that tells me that the industrial cycle has bottomed out and is likely to start growing again. The key was that while they reported their earnings down, their stock was up. Generally speaking, that’s a great sign.
Another point that came up while Amber, Ian and I were all together in Florida is that we were discussing the state of retail. Ian was mentioning to me that he had gone and looked up Target’s earnings. Target actually reported good earnings and their comparable store sales were up 7.4%.
We were all wondering why the stock wasn’t up. This is one reasoning why: It’s tricky to be a stock picker today because there’s a whole thing of the old world and the new world. Target sadly belongs to the old world that is slowly but surely going away.
They are trying as best they can to catch up with Amazon and doing lots of things that they can. However, the fact that the stock market thinks that Target is not doing enough fast enough and their stock keeps going down when their earnings are good is a terrible sign. I can remember the same thing happening with Sears stock starting in the late 2000s and you obviously know Sears has declared bankruptcy.
This is one reason why in Profits Unlimited, and across our services, we focus on the new stocks. Our consumer stocks, whether they be retailers, are focused on the future consumers that include the millennial generation, gen z and that want a different retail experience. That is being developed and includes technology, which once again spins back to our chip stocks because those will get used over there as well.
So in general, I want to echo what Ian was saying. I’m very optimistic for our stocks. I think we’re going to have an incredible year — a phenomenal year. I believe that we’re positioned perfectly to benefit.
That’s all I have. I’ll hand it back to you, Amber.
Amber: Thank you so much, Paul. We appreciate hearing your insights today. I want to thank everyone for listening to this week’s Market Talk. Be sure to tune in next week right here at Bold Profits Daily where you’ll hear further insights from our team. Until then, take care.
We discussed the Consumer Electronics Show (CES) that took place last week in Las Vegas, Nevada. I watched the coverage of the event on YouTube, and let me tell you — Internet of Things devices were everywhere.
Everything at CES was connected to the internet. Everything had AI.
And every one of those devices needs computer chips.
That means we’re going to see a massive increase in sales volume for the chipmakers I’ve been recommending in my services. And we’re going to see their stocks skyrocket.
We also talked about:
- Earnings season is starting now. We discuss which companies will surprise investors with better-than-expected earnings.
- Researcher and investment strategist Ed Yardeni shares his outlook on what’s being described as “the most hated bull market of all time.”
- The growth stocks in the Russell 2000 Index gained 3.7% last week — more than double the S&P 500 Index’s performance. We discuss what that tells us about investors’ appetite for risk at the start of 2019.
- “Old world” retail stocks continue their decline. I explain why 2019 will be a great year for the “new world” stocks in my portfolios.
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Editor, Profits Unlimited