My Comments: I’ll admit to having done poorly as an investment advisor these past few years. My history was and has been shaped by our collective experience following what became known as Black Monday on October 10, 1987. On that day, we were glued to the radio or TV as the DOW dropped over 22% and fear gripped the country.
For the past three years, I’ve been expecting and counseling clients to expect another, and as a result, I’ve not been positioned correctly as the markets have defied my expectations and largely continued to rise. I’m reminded of how a broken clock is right twice every 24 hours.
But over the past few weeks, in meetings with clients and prospective clients, each time someone other than I have brought up the question of another dramatic price drop. And each time I’m reminded of my inability to offer anything other than caution.
Some of that advice includes the understanding that a recession and a stock market crash, while related, are not synonymous. But it can be argued that either can trigger the other.
It’s also colored by the fact that I’m now in my 70’s and those I’m talking with are either in or are approaching retirement. A mistake now will be far more painful that it would have been 30 years ago. Then we had time to wait for a recovery. Today, not so much.
The so called tax cut passed by Congress and signed by Trump will likely make the next crash worse. That’s because so much of the impetus for the current gains is driven by corporations buying back stock from the general public with their tax savings. This extra demand pressure is driving stock prices up. The story we got was it would be spent on employee raises, new hiring, or benefits. The con job continues.
by Brian Sozzi – July 30, 2018
Too much hot money is concentrated in surging FAANG stocks (Facebook, Apple, Amazon, Netflix and Alphabet’s Google), and it may be about to end badly for investors.
Facebook’s (FB) post-second quarter earnings meltdown has shed light on increasingly narrow market breadth — an often negative development for stocks — explains Goldman Sachs strategist David Kostin. Narrowing breadth has been masked by the out-sized appetite for tech stocks such as Facebook and Netflix (NFLX) . The top 10 contributors in the S&P 500 have accounted for 62% of the S&P 500’s 7% year to date return. Of these 10 stocks, nine are tech or internet firms.
The tech sector alone accounts for 56% of the S&P 500’s year to date return, or 76% including Amazon (AMZN) and Netflix.
Nvidia shares have trailed the Nasdaq Composite since late June as investors book profits ahead of second quarter earnings on August 16. Remember, Nvidia saw a mixed response to its strong first quarter results back in May. At the time, investors called out some weakness in the auto chip business and in chips used in cryptocurrency mining to head for the hills. But given the company’s widening competitive advantages in the chip space, it will be hard for investors to stay away from Nvidia for too long.
“We see many reasons to maintain our 2-year-old bullish thesis on Nvidia,” says Arthur Wood analyst Jeff Johnston. “They are the leader in some of the fastest growing areas in tech and should continue to be so for the next several quarters. Additionally, they are well positioned to maintain/grow their dominant market share position in their legacy markets.”
The call from yours truly: Softbank will buy Nvidia within the next three years (It has a 5% stake in the company that it took in 2017).