Go Bull or Go Broke
Now that we have some semblance of a trade deal with China — or an anti-tariff deal, as I like to call it — we can truly focus on the case for a bull market in 2020.
Yes, Great Stuff — your occasional harbinger of market doom — is looking at bull market scenarios for next year. Honestly, the only thing holding me (and the U.S. economy) back was tariffs on the second-largest economy in the world. That’s China, for those following along.
So, unless President Trump ramps up the tariff talk when “phase 2” negotiations with China begin, I predict a steady grind higher next year. (I’m still keeping the Great Stuff Trade War Cycle chart handy in my back pocket … you know, just in case.)
Yesterday, I linked to a slew of Banyan Hill experts and their predictions for 2020. If you haven’t already, click here to check them out. Today, we’re turning to headline news from Barron’s and a prediction that 2020 will only be half as good as 2019.
According to analysts at Piper Jaffray, the S&P 500 Index will hit 3,600 next year. From yesterday’s close, that’s a gain of about 13%. So far this year, the benchmark index is up a whopping 27%. About 10% of 2019’s gains have come since the beginning of October, when Chinese trade optimism was finally rewarded.
Laying the groundwork for its bull market case, Piper cites continued support from the Federal Reserve and the 2020 election.
Starting with the Fed, Piper believes that interest rate hikes will be on hold for quite a while. Federal Reserve Chairman Jerome Powell indicated that the bar for a rate hike is pretty high. This is good news for Wall Street’s love of easy money. It’s also great news for the housing market, which posted a bigger-than-expected rise today in the wake of the Fed’s two rate cuts this year.
As for the 2020 election, Piper cites historical market data for its bull case. During election years with a sitting Republican president, the S&P 500 has gained 10.3% and finished in the green 75% of the time.
The Barron’s article was a bit downbeat on the bull market case. The headline, “Next Year’s Stock Market’s Gains Will Only Be Half as Good as 2019’s,” was a dead giveaway.
What I think many perennial bulls are missing, however, is just how bad the situation could’ve been (or could still be) without tariff relief. The jobs market is strong, but more expensive consumer goods still could put a strain on the American consumer. After all, most of those jobs are lower-paying, part-time positions.
Weakness in manufacturing was a real concern, and tariffs were doing nothing to improve the situation. And the agriculture market? Well … let’s hope China buying billions in U.S. farm goods comes soon enough for American farmers.
The phase 1 tariff relief bolsters all of these sectors and more. Even tech and semiconductor firms are looking pretty right now, with supply-chain worries now easing.
The bottom line is that we’re entering the 11th year of the longest bull market in history. What goes up must come down. A correction will come … eventually. But with help from a steady hand at the Fed, Trump’s phase 1 trade deal with China should help delay or mitigate the worst of what must eventually come.
For now, the bull market party rages on … albeit with a little less oomph next year.
Good: The Halo Effect
It’s looking like analyst predictions for better-than-expected Apple Inc. (Nasdaq: AAPL) iPhone 11 sales are holding true.
Jabil Inc. (NYSE: JBL), which makes iPhone cases and other Apple products, is experiencing quite the halo effect. The company reported considerably better-than-expected first-quarter earnings. The company beat expectations by $0.09 per share, with revenue topping by more than $500 million. Earnings were up 17% year over year, while sales jumped 15%.
The company also boosted guidance for the current quarter, setting expectations for earnings of $0.72 per share on sales of $6.35 billion. Wall Street currently expects earnings of $0.69 per share and $6.18 billion in revenue.
While Jabil is looking to diversify away from reliance on Apple products, the company still gets about 22% of its total revenue from the iPhone-maker.
Better: Mr. Worldwide
There’s been quite a lot of talk about competition in the streaming market this year. The Walt Disney Co.’s (NYSE: DIS) Disney+ is not only a major contender for the top spot, but it also spawned the meme of the year with baby Yoda. AT&T Inc. (NYSE: T) may finally get its act together with HBO Max. Comcast Corp. (Nasdaq: CMCSA) is launching “Peacock,” and ViacomCBS Inc.’s (NYSE: CBS) Pluto TV will be a force to be reckoned with.
But none of these companies — and that includes Amzon.com Inc.’s (Nasdaq: AMZN) Prime Video — even come close to the market edge that Netflix Inc. (Nasdaq: NFLX) just revealed. That edge: 90 million overseas subscribers.
Netflix just released subscriber numbers ahead of next month’s quarterly earnings report, and the figures are astounding. The streaming giant has 158.3 million subscribers globally, with 60 million in the U.S. and Canada and … again … 90 million overseas.
So, yes, competition is rising in the streaming market. Yes, growth is slow for Netflix in the crowded U.S. market. But … the company is still growing by leaps and bounds internationally. This growth outside the U.S. should give the company more time (and cash) to compete with this year’s growing crop of upstart contenders for the crown.
Best: Oh, Hi Roku
Yes, dear readers, it’s the inevitable return of the great Roku Inc. (Nasdaq: ROKU) hype.
My leading recommendation for anyone looking to profit from the online streaming revolution is trading down today … and that’s great news. It means that, once again, you have an opportunity to add to your holdings — or buy in fresh.
Why is Roku down?
The company announced this morning that Chief Financial Officer Steve Louden plans to step down. Steve was the guy who helped Roku transition from a private company into a publicly traded one. He was key in that transition, but it’s time to move on. And Roku will be just fine.
Still, ROKU shares are down about 2% following the news. They were down more than 4% in premarket trading, but investors began snapping up the shares at their lows on the open.
As you may have noticed, Roku is a bit of a volatile momentum stock. It moves rapidly on any bit of news — negative or positive. This is par for the course when investors get nervous about companies with Roku’s kind of momentum. It also provides you with ample opportunity for profit.
No other company has the same profit potential in the streaming market as Roku. Its devices are streaming-service agnostic, affordable and easy to use. But Roku’s real revenue driver is leveraging its massive user base for ad dollars.
That’s why I believe the stock will go to $200 next year. That’s a nearly 50% upside from current levels, and that’s why Roku is today’s Great Stuff “best.”
The top 1 percent of hermit crabs owned only about 3 percent of the total shell weight, Dr. Chase and his co-authors noted: “There are no Warren Buffetts or Jeff Bezoses.”
— Elizabeth Preston, The New York Times.
Today’s Great Stuff quote of the week comes from a study by Dr. Ivan Chase on wealth inequality and — I’m not making this up — hermit crabs. Apparently, bigger crabs hoard bigger shells … or something like that.
I’m imagining a crab swimming in a vault of large shells like Scrooge McDuck. Sounds painful.
According to Dr. Chase, hermit crabs might be one of the only animals to experience wealth inequality. However, he’s not ready to make any direct assumptions just yet.
Wealth inequality and hermit crabs? And I thought I’d heard everything.
At least now we know why Mr. Krabs in SpongeBob SquarePants was always so on edge.
Great Stuff: Yoo-Hoo! I’ll Make You Famous
Are you ready, kids? (Aye aye, captain!)
It’s that time again.
No, it’s not time to bathe with you in the sea. (There are a surprising number of Savage Garden fans reading Great Stuff, by the way.)
You have two days to drop me a line at GreatStuffToday@banyanhill.com to make this week’s edition of Reader Feedback.
We take all kinds here: comments, questions, witty remarks and holiday recipes. As always, no cursing, please. We can’t publish that s#&%.
I’ll get the ball rolling for you:
- What’s your “bull case” for the market in 2020? Where will the S&P 500 finish?
- What’s your favorite streaming stock? And why is it Roku?
- Which streaming service do you think will dethrone Netflix?
- What if we built a large wooden badger?
Wise men say only fools rush in. But I can’t help looking forward to your comments and questions.
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing