In this week’s Market Talk, Amber Lancaster, Ian Dyer and I discuss:
- The latest news about U.S.-China trade talks.
- Some of the big earnings reports coming out this week.
- What’s been going on with the CBOE Volatility Index (VIX) since its Christmas Eve high.
- Caterpillar’s growth projections for 2019.
- How our Bold Profits Disruptification Index is doing compared to the S&P 500 Index.
January 28, 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. Today’s outlook is for the week of Jan. 28, 2019. I’ll begin by sharing with you what I’m watching and then we’ll hear from Ian and Paul.
It’s shaping up to be an eventful week for the market. U.S. and China trade talks are at a crucial point. Chinese trade officials arrive in Washington, D.C. this week to help lay the groundwork for resolving the ongoing trade dispute. Vice Premier Liu He will meet U.S. Trade Representative Robert Lighthizer and Steve Mnuchin over Wednesday, January 30, and Thursday, January 31.
The U.S. has given China until March 2 to make progress on the trade issues. And China, I can say, is incentivized to do just that because, per Bloomberg data, these talks are on the heels of China’s industrial profits falling 1.9% last month — after a 1.8% decline in November.
We’ll also hear from Federal Reserve Chairman Jerome Powell on Wednesday. He will hold a 2:30 p.m. press conference following a two-day meeting of the Federal Open Market Committee (FOMC). His speech will give us insights into whether Fed officials still expect to raise rates two times this year. The FOMC rate decision, which will be released at 2 p.m. Wednesday, is forecast to remain unchanged at 2.5%.
We can expect to see the January jobs report released on Friday, Feb. 1, at 8:30 a.m. Currently, the market is expecting a change in non-farm payrolls of 165,000 versus a very robust 312,000 recorded in December. The unemployment rate is expected to remain unchanged at 3.9%.
Now with the partial government shutdown over, we can expect to see furloughed government workers counted as employed because they will receive their back pay. Uncertainty remains as to government contract workers, who have received no pay for the time missed, and how that will affect both readings since they fall under the category of private-sector workers.
Also on Friday, the Michigan consumer sentiment index monthly survey of U.S. consumer confidence levels, conducted by the University of Michigan, will post the final sentiment print for January. This number is based on telephone surveys that gather information on consumer outlooks concerning the overall U.S. economy. It’s intended to gauge the mood of American consumers with respect to their economic wellbeing and expectations.
The number is projected to remain unchanged at 90.7 and the University of Michigan stated that the last time that this sentiment index was consistently above 90 was between 1997 and 2000, when it recorded an average of 105.3.
It’s a big week for corporate earnings. Companies like 3M and Apple report on Tuesday, Microsoft on Wednesday and Amazon on Thursday. Finally, we’ll hear from Exxon and Merck on Friday.
On the technological disruption front, I couldn’t let this week’s talk pass without mentioning some interesting developments on the automotive front. According to CarSpeak.com, Chinese upstart Lynk & Co — a car company that didn’t exist three years ago — is the world’s fastest-growing brand after reporting it sold just over 120,000 cars in China last year.
Lynk & Co is a global automotive brand formed as a joint venture between Geely Auto Group and Volvo Car Group. Lynk & Co dares to disrupt the established automotive industry with a lineup that meets the desires of a new generation of globally connected consumers. Lynk & Co introduces a new business model based on personalized services, sharing potential, the first dedicated app store for cars and an open API, which is short for application program interface, a software intermediary between two applications that allows them to talk to each other. This is all included with their new car brand.
So Lynk & Co currently produces the 01 SUV, the 02 crossover, future vehicles like the 03 sedan, the 04 hatchback and the 01 SUV coupe. Finally, this new car company is planning an important global expansion. They will soon launch cars in Europe in 2020 in countries like Amsterdam, Berlin, Brussels, Stockholm, London and Barcelona — huge cities. Then, the company will enter the U.S. market.
Lastly, our Disruptification Index has made great gains so far this year. As of Friday’s January 25 close, it’s up 17% versus 6% on the Dow and S&P 500. This is a beat of nearly three-to-one year to date.
So that’s it for me. Ian, what are you watching?
Ian Dyer: Thanks Amber.
First, I want to talk a little bit about the VIX, or Volatility Index. For anyone who doesn’t know what this is, it’s an index that measures the amount of volatility or fear that’s in the market right now. Exactly what it does is measure the amount of premium on put options for the S&P 500.
Of course, when people buy put options they expect a stock to go down. When the premiums on the option is high, it means a lot of people are piling into them at once and are willing to spend more than they normally would to buy the put options. So when the index is higher, it means there is more fear in the market. As of Friday’s close, the index was trading at 17.42, which is down about 52% from the high it made around 46 on Christmas Eve when the market hit its low point from this correction.
So that means there’s a lot less fear in the market right now and people are refraining from hedging their portfolios and instead are putting that money back into stocks, as we’ve seen by the huge rally in the past month or so.
I also want to talk about earnings a little bit. As Amber said, there are some pretty important companies reporting this week — a few of them are Microsoft, Amazon, Facebook, and even Tesla and Caterpillar are reporting.
Caterpillar is one I like to watch to get a gauge on the economy because they are at the forefront of production all over the world. They do construction project everywhere, especially in China and the U.S., which are the two biggest economies in the world. Usually their earnings calls are filled with really good information about how the global economy is moving along.
Some things that I’ve noticed so far in this quarter’s earnings reports is that even though analysts have lowered expectations for companies’ earnings growth, that was really due to the fear in the market we saw during the correction. Even though it’s still early right now, 71% of companies reported higher-than-expected earnings and even the companies that haven’t, we’ve seen buying in those stocks. For example, the companies that have not reported earnings as strong as expected have gone up 1.5% in the two days following that earnings report.
So that could suggest that people are starting to change their minds on the market. The earnings along with the movement we’re seeing in the VIX — people are turning bullish and expecting improvement in the economy.
We’ve also seen this based on the amount that foreign stocks are rallying. For example, China is up about 6%, Japan is up about 8%, and Europe is about 7% to 8% up in the past three or four weeks. Even in the states, the S&P 500 is up about 6% this year as of Friday’s close.
It’s looking really good for stock markets all over the world right now. Companies are reporting strong earnings. This is something that we expect to continue here in the U.S. as companies continue to report.
One thing that I’d like to mention in closing, we have a service called Rapid Profit Trader that is launching a very exciting trade this week. We’re really excited about this. We’ve traded options on this particular stock two times in the past and it generated huge returns. We’re very excited to get this trade going now that so many stocks are on the way up.
That’s all that I have today. Paul?
Paul Mampilly: Thanks Ian.
Ian mentioned Caterpillar and I just want to provide some more comments on that. Caterpillar actually said that it is expecting 2019 to be a modest growth year. The reason why that’s important is that when you look at what happened over the last three months, modest growth is actually positive news. It’s clear that any number of people, large investors, were thinking there was going to be a global recession sometime this year.
So for Caterpillar to come out and say that they are going to see modest growth, because of the nature of their business, that’s a great sign. It’s telling you there is no global recession, there is no crash, there is really nothing of any great significance that is happening.
It is completely normal for economies of the world to see slowdown and spurts in growth — that’s pretty much expected. For sure, companies are affected; however, when you saw the size of the moves and the speed at which it happened last year, it will tell you it’s clear that was a complete overreaction to what really is fairly normal conditions. That’s one thing.
Just like Ian, over the weekend I saw all the earnings numbers. Once again, when we go and listen to what companies are saying, they are telling us that their businesses are solid. In other words, there’s customer demand for what they are selling and they continue to make more, which is a good sign.
For the rest of my comments, I want to go back to some things that Amber brought up. Particularly about the car company in China. To me, that’s very representative of what I believe is the dominant theme of investing today in the stock market: The new versus the old.
Invest in the old and you get modest returns and potentially losses. I keep bringing up Sears as an example of companies that are going bankrupt. Invest in the new, and you do expose yourself to volatility, however you can be almost certain that you eliminate the greatest risk of all, that your company goes bankrupt.
Today I want to put up this chart that shows you the music business. Those of you who are in the music business or have been following it know that this is a business that has been in a deep decline for nearly 20 years because of the fact that sales of CDs have been slowing. This is a great example.
So if you’re in the business of selling CDs you’re in a depression. However, if you’re in the business of streaming, you’re in a boom. New versus old. You can see that in the chart. Physical CD sales are in decline, streaming is going up.
You can take this theme and extrapolate that out to so many different parts of our economy. Let me just quickly go into one more segment that few people think about when thinking about new versus old: the financial sector. This is a sector that has done very little in terms of innovation, very little to make people’s lives easier. I believe the financial sector, meaning banks, money managers, all these companies that have made a very good living doing the same thing for 50, 75 or maybe 100 years, are about to be disrupted.
You can see it by this chart. It’s showing you that between 2010 and 2017, $100 billion has been going into private investments. In other words, innovative companies that are looking to do things better, different, cheaper, give you more choices, make things more convenient, they have all these old world financial companies in their target scopes.
That $100 billion, you can be sure, is going to absolutely disrupt these big banks that have been out there. It’s a place where across our services we are going to be looking to make investments. We can see that some of these companies are going to be huge. Just like with Amazon and some of the others, this is going to be another sector where there’s only going to be a few winners. Three or four winners and they are going to be huge.
The theme new versus old is something we focus on a lot in Bold Profits Daily and across our services. The last thing I’ll say is that when you actually look at the valuations of companies in the private sector versus what you can buy in the stock market, they’re cheaper in the stock market. This was one of the reasons why our Disruptification Index, I believe, is really outperforming.
People can ask: “Where can I buy the innovation, where can I buy new-world companies?” They’re cheaper in the stock market. It’s an absolutely great time to buy these companies, which is why I’m incredibly optimistic. Even though our companies are volatile, I still believe they’re going to make it worthwhile to be invested in.
So that’s all I have and I’m going to hand you back to Amber.
Amber: Thank you, Paul. Great insights as always. Thank you, Ian. We always enjoy hearing from you. Most importantly, thank you to our listeners. Thank you for tuning in this week. We hope that you have a wonderful day. We shall talk to you next week. Until then, take care.
The fastest-growing brand of cars in the world is a Chinese upstart called Lynk & Co.
The joint venture between Volvo and Chinese automaker Geely sold a whopping 120,000 cars last year.
One of the ways Lynk & Co. is disrupting the auto industry is with its open programming interface. That means third-party developers can create apps for its vehicles.
It’s the first car company in the world to have its own app store.
Lynk & Co. is already planning to sell its cars in major cities throughout Europe. And eventually, in the U.S. as well.
And that’s just one example of an innovative new company that’s experiencing rapid growth. In today’s podcast, we also discuss:
- Music — The industry was in deep decline for 20 years due to struggling CD sales. And now it’s booming again thanks to an exciting new development.
- Fintech — The big banks and money managers have made a good living from doing the same thing for the last 100 years. But the entire financial industry is about to be “disruptified.”
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Editor, Profits Unlimited