Tag Archives: investment advice

‘Rolling Bear Market’ Will Paralyze Stocks for Years: Morgan Stanley

My Comments: It became accepted wisdom that a properly diversified stock portfolio can indefinitely absorb an annual 4% withdrawal rate to satisfy a need for retirement income.

That assumption is now disappearing. There is growing sentiment that over the next decade, if not longer, a 4% withdrawal rate will lead to the exhaustion of your reserves, leaving you with no money with which to pay your bills.

This story talks to this and suggests what we’ve recently seen as a solid return on investments is changing.

By Shoshanna Delventhal | September 14, 2018

U.S. stock investors should brace for a market that will be paralyzed for several years in a narrow trading range, according to one team of analysts on the Street, and as reported by CNBC. Investors are already in the midst of a “rolling bear market” that will push the S&P 500 down as much as 17% and no higher than 4% from today’s levels, Morgan Stanley’s chief equity strategist, Michael Wilson, told clients in a recent note.

“We think this ‘rolling bear market’ has already begun with peak valuations in December and peak sentiment in January,” stated Wilson.

What A Rolling Bear Market Looks Like

High: 3000, up 4%
Low: 2,400, down 17%

Earnings Deceleration Caused by Higher Input Prices

Unlike a typical bear market, where stocks fall simultaneously, Morgan Stanley says the “rolling bear market” will rotate from sector to sector and even from stock to stock, as the weakest are hit first and the hardest. As a result, the investment firm indicates that assets like bitcoin, the world’s largest cryptocurrency by market capitalization, as well as emerging market debt equities, base metals and homebuilders could prove particularly risky.

He expects the rolling bear market to accelerate as the investors send shares down on weaker than expected earnings, driven by higher supply-side inputs like energy, transports, labor, funding, tariffs and material costs.

“We view the rate of change in earnings growth as one of the most important drivers of equity prices broadly; so our belief that earnings growth is likely to slow more in 2019 than the market anticipates is important for our less optimistic view on equities,” wrote Wilson, who is the most bearish strategist tracked in CNBC’s regular survey. His June 2019 S&P 500 target of 2,750 implies a 5.2% downside from current levels. At 2,901 as of Thursday morning, the S&P 500 reflects an 8.5% return year-to-date (YTD).

These Rolling Bear Market Sectors Are at Risk:
Tech
Bitcoin
Emerging Market Debt
Emerging Market Equities
Base Metals
Homebuilders

Information Technology Looks Risky

Wilson reiterated a pessimistic outlook for high-flying information technology stocks. “It makes sense to lower broad exposure in the near term as elevated valuations, lack of material earnings upside against expectations, extended positioning, technicals, and trade-related risks all add up to a poor risk reward for the sector in the near term,” he wrote.

In May, Morgan Stanley first forecasted the rolling bear market, which it says is now upon us, and recommended stocks that would thrive in this kind of environment. In the report titled, “30 for 2021: Quality stocks for a 3-year holding period,” analysts highlighted players such as video game maker Activision Blizzard Inc. (ATVI), financial firms The Charles Schwab Corp. (SCHW), JPMorgan Chase & Co. (JPM) and BNY Mellon (BK), consumer brands leader Constellation Brands Inc. (STZ), and search giant Alphabet Inc. (GOOGL) as safe bets in the rolling bear market.

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We’re underestimating China’s economic power. Here’s why

My Comments: By first choosing to opt out of participating in the Trans Pacific Partnership (TPP) and then inviting a trade war with China, the US has effectively ceded global economic supremacy to China. The expressed logic behind these moves was in the guise of ‘Make America Great Again”. Hah!

In turn, China is attempting to match their new found economic supremacy with military supremacy. It’s only a matter of time before we find ourselves in a conflict or “Cold War” with echoes of what we lived with years ago and the Soviet Union.

September 27, 2018 Knowledge@Wharton

China’s economy is so large – and growing so rapidly – that it’s difficult to get a true read on the size of its influence on the world stage, according to this opinion piece by David Erickson, a senior fellow and lecturer in finance at Wharton. Before he taught at Wharton, Erickson was on Wall Street for more than 25 years, working with private and public companies to raise equity strategically.

Some of the rhetoric out of Washington recently has been suggesting that the U.S. is “winning” the trade war because the U.S. stock market is near all-time highs as China’s domestic equity markets have declined significantly. While the domestic Chinese equity markets have suffered since the trade tensions started earlier this year, I think that premise underestimates the economic power of the rapidly growing number-two economy in the world and really needs a bit of context.

The Chinese equity stock market — as represented by Shanghai stock market — actually peaked in 2015. This is not too dissimilar from the market cycles we have experienced in the U.S. in the last 20 years. This includes what we saw in the Dow Jones Industrial Average (DJIA), which reached 11,000 in May of 1999 but took more than seven years to reach 12,000. While the DJIA advanced from October 2006 to July 2007 from 12,000 to 14,000, it took almost six years, until May 7, 2013, before it advanced to the 15,000 milestone. For the NASDAQ market, the cycle was even more dramatic where it took 15 years to reach new highs in 2015. Markets do go through cycles.

But hasn’t the Shanghai stock market been quite volatile since the trade war started? Yes, it has. This is not surprising with much of the domestic Chinese equity market activity largely being from retail investors, especially with many having very limited experience in Chinese equity investing (which I will address shortly). With the uncertainty of the trade rhetoric over the last few months, there was likely to be some significant volatility. However, by way of comparison, the U.S. equity markets went through significant volatility earlier this year after a significant run since the 2016 U.S. election. If you go back a bit further, the U.S. equity markets, which are largely institutionally driven, had significant periods of volatility during the 2008 Financial Crisis, where the DJIA fell almost 800 points on September 29th; the technology “bubble” in 2000, where on April 14th the NASDAQ fell 9% and for the week 25% (and the NASDAQ 100 index lost 78% of its value in two years); and when the Dow Jones fell almost 23% in one day on “Black Monday” of 1987.

Why do I go back to 1987 for context? Because in 1987, while a Wharton finance student could study “Black Monday” in the context of previous crashes in the U.S. stock market, the Chinese domestic equity market didn’t exist and wouldn’t until 1990. That’s right, a Chinese student studying finance on mainland China at the same time couldn’t learn about investing in the Chinese equity markets because it did not exist until a few years later. The Shanghai Stock Exchange was founded in 1990 (and Shenzhen around a similar time) creating a domestic equity market for both mainland Chinese companies to list and finance, and for Chinese institutions to invest. Today, it is estimated that the Shanghai Stock Exchange has over 200 million retail investors — total U.S. population is just 327 million — and for the full year 2017 was the number-two IPO market globally in terms of proceeds raised. So, while the Chinese equity market has suffered significant losses this year, given the “rapidity” of its evolution, these changes need to be put in context.

“Now, markets in Hong Kong, Shanghai and Shenzhen collectively represent the largest IPO market in the world….”

These are just a couple of the things we learned on our recent trip to Hong Kong, Shanghai and Shenzhen as part of Wharton’s MBA course called Strategically Investing in the Growth of China. A delegation of 58 Wharton Executive MBA students, along with three faculty members, met with prominent Chinese companies, leading Chinese public equity and private equity investors, as well as representatives of the Hong Kong and Shanghai Stock Exchanges, and explored how they strategically invest in the growth of China. While I had been to China many times during my previous investment banking career (though the last time was in 2013 before I retired), about 85% of our students had never been to Hong Kong or mainland China.

When we started our trip, given that many of our students had never been before, I wanted to give them a few numbers to provide some context as to the size and scope of the Chinese economic opportunity. Here are some of them — all approximations:
• a population of 1.4 billion people;
• 620 million mobile internet users as of 2015, according to China’s Mobile Economy: Opportunities in the Largest and Fastest Information Consumption Boom;
• 400 million in the middle class.

And to get some sense of the rapidity of the change:
• Exports have grown for the last 30 years at a 17% compound annual growth rate (CAGR), making China the world’s largest exporter at $2.3 trillion in 2015, according to The China Questions – Critical Insights into the Rising Power;
• In 1980 about 70% of Chinese labor force was in agriculture; by 2016 only 30% was in agriculture;
• In 1980 only 2% were university educated; by 2016, approximately 30%;
• In 1980 Shenzhen had a population of 30,000; by 2016, Shenzhen had a population of some 12 million.

What I realized as we progressed through our visits to these companies and investors was that these numbers were understated, and significantly under-estimate the economic power of China. Let me outline three of the specific attributes that we learned about and discussed as part of our trip:

Money Confession: I have $30,000 sitting in my checking account, but I’m too scared to touch it

Tony’s Friday Blog = Random Thoughts: This advice from Kaitlin Menza applies not only to millenials but to baby boomers and earlier (of which I am one). But especially to those of you with many years to live.

Inertia is an insidious problem for many of us. We have money in a ‘safe’ place and with all the uncertainty we face, it comforts us to know it. But we are perhaps trading a present benefit for future drama.

So what should you do? I have some thoughts but I’d like to hear from some of you before I answer.

By Kaitlin Menza | Sept. 19, 2018

In this ongoing series, Mic readers submit their money confessions — and we’ll ask experts how to help solve these difficult financial issues. Send your own anonymous confession to moneyconfession@mic.com to get advice on your situation here.

The confession

“I have a stupid amount of money in my checking account. I inherited a bunch of family money that I truly wasn’t expecting, and now there’s around $30,000 in there, in the same spot where my paychecks come in and out. I haven’t touched it because I’m frozen by all of the options and by my fear of losing it. Help!”

Why this is an issue

It sounds like a great problem, right? So great that many people might not feel so bad for this week’s Money Confessor. But it’s not necessarily the dream scenario it might sound like, Ashley Johnson, chief operating officer and chief financial officer at Wealthfront, an investment app and website, said.

“Sometimes we have these windfall events,” Johnson said in a phone interview. “The company we’re working at goes public, or because your company does well one year, you get a bonus. The bottom line is good financial habits apply to everyone. Whether it’s a onetime windfall or if someone is squirreling away 15% of their paycheck, the same rules apply.”

The advice that follows, then, isn’t just for those who are suddenly gifted five figures. It applies to anyone who is paralyzed by extra funds sitting in a savings or checking account doing nothing for them — an occurrence that is incredibly common for millennials, especially millennial women. A SoFi and Levo League study published in April found that while over half of millennial women have the means to invest, 56% don’t due to fear.

“For the Millennial generation in general or anyone who’s lived through [the financial crisis], it’s natural to be inherently skeptical of putting money into the market,” Johnson said. “I also understand that women tend to have this confidence gap to investing their money. Either they feel they don’t have enough knowledge or they don’t have enough expertise to do it.”

You may think just sitting on tens of thousands of dollars isn’t hurting anything — at least you’re not losing it, right? — but that’s technically wrong, Paco de Leon, founder of the Hell Yeah Group, a financial firm geared at creatives, said.

“The reason why people believe that you should not just let a ‘certain amount of money sit in your account and do nothing’ is because of the reality of inflation,” de Leon said in an email interview. “Inflation is when things cost more over time. So let’s just say this young woman leaves the $30,000 in her checking account for 20 years. Twenty years later, the $30,000 won’t be as valuable. Her purchasing power has decreased.”

One way to combat this erosion of purchasing power is by getting a return on the cash through investing, de Leon said. “When you invest in the market, your money grows exponentially through the magic of compounding,” he added.

“One of the hardest concepts for people to wrap their minds around is the power of compounding,” Johnson said.

Here’s a great way to visualize compounding with regard to investments: It means your money multiples while you do literally nothing. Sounds awesome, right?

The advice

You might think a random windfall should be used to pay off a major debt, like student loans, credit cards or a mortgage. But both Johnson and de Leon recommend establishing an emergency fund instead.

“General financial wisdom says that the first thing you should have saved for is an emergency fund,” de Leon said.

Johnson said you should do the math on your monthly expenses. “Take rent, utilities, car payments, whatever that might be, and multiply that by three to six depending on your comfort level,” she said. “First and foremost, I’d make sure that money’s set aside in a high-yield savings account.”

From there, she suggests paying down high-interest debts like credit cards — “debt is a guaranteed negative rate of return,” Johnson said — before setting up a payment plan for debts like student loans or mortgages. “Then the third thing is investing in a 401(k) or IRA. These are tax-efficient and set you up for the future.”

At that point, the Money Confessor is a financially solid individual — and then the fun starts. Well, a type of fun.

“How she distributes the rest of the cash is entirely up to her and should be dictated by her goals,” de Leon said. “The question of whether or not to invest and what to invest in is easily answered once you determine what your goals are. Some people have a goal of retiring by 40, some people have a goal of buying a Tesla and some have a goal of aggressively trying to get out of debt. Different goals will determine what you do with your cash.”

If buying a home or paying off loans is a medium-term goal, for example, one might want to keep the cash liquid for easier access. Otherwise, Johnson recommends hiring a low-cost money manager — here’s more information on finding one — to help figure out how to diversify your investment portfolio based on “age, income and risk appetite.”

In short, a random inheritance, gift, bonus or even lottery win is hardly an excuse to go on a spending spree. It’s an opportunity to finally establish a solid plan so you don’t have to fear medical emergencies, getting laid off or the million other anxieties life might hold. The worst thing is to stay afraid and to do nothing.

“Empower yourself to use money as a tool to formulate your future,” de Leon said. “The financial industry, just like any other industry, leverages your anxiety so they can continue to hold the power and so that you have to pay for advice or knowledge or access.”

If the alternative is your money actually decreasing in value, well, perhaps that’s enough motivation to finally get moving.

The Fiduciary Rule Is Dead. What’s an Investor to Do Now?

My Comments: Under the Obama administration, a long awaited and necessary step was taken to introduce rules that protected consumers of investment advice. It created a fiduciary standard for licensed financial professionals that formalized a ‘best interest’ mindset for professionals when working with clients.

Very soon after Trump became president, he announced this idea was a waste of time, presumably responding to pressure from Wall Street firms. As someone who has embraced a fiduciary standard in my practice for over 40 years, I saw it as a way to better serve my clients and to level the playing field among financial professionals, some of whom choose to cheat.

Interestingly, many national and regional financial firms of every stripe chose to embrace the idea of a fiduciary standard, recognizing it’s value in an ever competitive world. My suspicion is that if and when Trump is gone from the scene, this valid idea will resurface. Finding ways to cheat and not be held accountable is not in my client’s best interest.

By Lisa Beilfuss Sept. 9, 2018

It is a tricky time to be working with an investment professional.

Regulation is in flux, and different types of professionals are held to different standards when it comes to giving advice and recommending products. So, it can be hard to know exactly what you’re paying for.

Muddying the waters, a U.S. Circuit Court in June threw out the Labor Department’s fiduciary rule, an Obama-era regulation that sought to curb conflicts of interest in financial advice that the Obama administration said cost American families $17 billion a year and a percentage point in annual returns.

The decision was a final blow to a rule that the financial-services industry fought, saying it would make advice more costly, and that the Trump administration had put under review for revision or repeal.

The Securities and Exchange Commission, meanwhile, has been working on its own investor-protection measure. The agency’s version may wind up replacing the fiduciary rule, though it is shaping up to be less restrictive for brokers, and consumer advocates say that it would do little to raise the standard of care that is currently required.

Here are a few things investors should know as they navigate their financial relationships.

Names can be crucial
Financial pros can go by a number of titles: There is wealth manager, financial planner, broker, financial adviser—as well as “advisor” with an “o”—and more. The difference is sometimes semantics, but it is often much more.

For one, financial advisers, regulated by the SEC, have for decades been held to a fiduciary standard, meaning they have to put clients’ interests before their own. The requirement traces back to the stock-market crash of 1929 and subsequent Depression, which Congress in part blamed on abuses in the securities industry.

Brokers are regulated by the Financial Industry Regulatory Authority, or Finra, the securities industry’s self-regulatory body. They must provide what the agency describes as “suitable” investment advice—short of the fiduciary care required of their adviser counterparts.

Where things get tricky is that some financial professionals are dually registered, and some have professional designations that carry requirements trumping the standards required by regulators. For example, a broker who’s also a certified financial planner has to serve as a fiduciary, when doing financial planning, to maintain the designation.

The best way to know whether your adviser is a registered investment adviser, broker or both is to search BrokerCheck, a database maintained by Finra. An individual’s profile will denote his or her title and regulatory overseer.

But industry professionals and consumer advocates say investors should confirm any information with their adviser. Even better, the experts say: Investors should ask a financial professional to put in writing whether he or she is a fiduciary in their particular relationship.

Location matters
When it comes to which standard of care is required of an investment professional, where he or she works matters. Advisers who are held to a fiduciary standard must choose products that are in the best interest of the client. But what products an adviser can pick varies from firm to firm.

For example, at stand-alone investment advisories—-those that aren’t connected to a bank or brokerage—advisers typically have access to the universe of investment products, including the cheapest index funds. Some brokers at firms connected to banks do too, but not always. Some firms have house funds and lucrative partnerships with fund companies, and their brokers have more limited menus of investment options from which to choose.

To understand any constraints and incentives an investment adviser might have in recommending products, consumer advocates suggest checking firms’ securities disclosures. Advisory firms regulated by the SEC have to spell out conflicts of interests in those.

With the Labor Department’s fiduciary rule dead, brokers don’t have to disclose conflicts the way they did under the rule. Observers say potential rules from the SEC requiring that brokers serve clients’ best interest may emphasize disclosing conflicts over mitigating them.

For now, the best way to understand conflicts and constraints is to ask your broker, and to have him or her explain product selections.
“Never own something you don’t understand,” says Patti Houlihan, who heads the advocacy group Committee for the Fiduciary Standard. “If you can’t understand [a product] after reading a few pages on it, you shouldn’t be buying it,” she says, suggesting investors walk away from anything that is confusing or sounds too good to be true.

Fees don’t necessarily mean ‘best interest’
Many investment advisers, already required to act as fiduciaries, charge investors a percentage of their assets under management. Doing so eliminates commissions, which can cause conflicts of interest by pushing an adviser to recommend one product over another to the detriment of the client.

After the fiduciary rule was unveiled—and then went into temporary effect—many brokerages accelerated moving clients toward fee-paying accounts from commission accounts. They said it made compliance with the new regulation easier, because charging commissions under the fiduciary rule would require disclosures and contracts that executives said were too onerous and costly.

Fee accounts are regulated by the SEC, meaning once you’re in one, the adviser needs to act as a fiduciary. But that doesn’t mean being put into one was actually in your best interest.

A fee account “doesn’t keep your fees from being way higher than they should be,” says Barbara Roper, director of investor protection at the Consumer Federation of America.

“The fee-based accounts at brokerage firms still incorporate the conflicts of the broker-dealer model,” Ms. Roper says, such as revenue derived from fund companies, proprietary products and incentives meant to encourage broker behavior.

Ms. Roper encourages investors to ask their financial professionals for detailed fee breakdowns. For example, is a 1% advisory fee all-inclusive, or is that separate from underlying product fees? Investors with more complicated financial pictures might pay more to get more service, but even they should be wary of paying much more than 1%, Ms. Roper says.

“That’s a hole you have to dig out of,” she says, referring to the long-term effect of fees on investment returns.

By the same logic, paying commissions doesn’t necessarily mean you don’t have a fiduciary. In the spirit of the obligation, investment professionals are expected to evaluate on an individual basis what type of model is best.

Source: https://www.wsj.com/articles/the-fiduciary-rule-is-dead-whats-an-investor-to-do-now-1536548266

Behold the ‘scariest chart’ for the stock market

My Comments: By now you’ll perhaps realize that whatever I say about what is likely to happen in the markets is wrong, and that you’d be better off doing just the opposite.

That’s OK. And if you are young and retirement is a few decades away, it’s OK to ride it out. But if you’re no longer young and foolish, then articles like this one from Sue Chang need to be read. What you do about it is up to you.

by Sue Chang, August 9, 2018

A lot has changed since the stock market crash of 2000. Apple Inc. has gone from being just another computer brand to becoming the most valuable company in the world, Amazon.com Inc. went from being an e-book retailer to a byword for online shopping and Tesla’s Elon Musk has risen from obscurity to Twitter stardom.

Yet some things never change and Doug Ramsey, chief investment officer at Leuthold Group, has been on a mini-campaign highlighting the parallels between 2000 and 2018.

Among the numerous similarities is the elevated valuation of the S&P 500 then and now, which Ramsey illustrates in a chart that he has dubbed as the “scariest chart in our database.”
“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,” he said in a recent blog post.

Price-to-sales ratio is one measure of a stock’s value. It isn’t as popular as the price-to-earnings ratio, or P/E, but is viewed as less susceptible to manipulation since it is based on revenue.

He also shared a chart which he claims is “unfit for a family-friendly publication” that shows how in terms of median price to sales ratio, the S&P 500 is twice as expensive as it was in 2000.
“Overvaluation in 2000 was highly concentrated; today it is pervasive, with the median S&P 500 Price/Sales ratio of 2.63 times more than double the 1.23 times prevailing in February 2000.

In a follow-up post, he then reiterates how 2018 is starting to increasingly look like 2000.

“The statistical similarities between the two bulls are on the rise, and the wonderment surrounding the disruptive technology of today’s market leaders seems to have swelled to maybe 1998-ish levels,” he writes.

That upward trajectory of the market isn’t sustainable, he warns. Ramsey admits that history isn’t the best guide for the future but the S&P 500’s performance since it touched its peak on Jan. 26 is closely mirroring what happened 18 years ago.

“In the earlier case, a volatile five-month upswing that began in mid-April ultimately fell just a half-percent short of the March 24th high by early September. This year, a similarly choppy, six-month rebound has taken the S&P 500 to within 1% of its January 26th high,” Ramsey said.

(At this point, if you are still interested in this idea, I’m going to send you to the article as it first appeared. Here’s the link: https://www.marketwatch.com/story/behold-the-scariest-chart-for-the-stock-market-2018-08-08 )

7 Myths About Variable Annuities: Exposing Their Dark Side

My Comments: Anyone now retired or thinking about retirement spends time and energy coming to terms with how to manage their money.

Increasingly, fees charged by advisors and/or their companies are perceived as a threat somewhere along the way. However, unless you have the skills to do it all yourself, you are necessarily going to have to pay fees to gain the peace of mind you crave.

But there are fees and there are fees. My experience with variable annuities suggests they are generally excessive and you can gain the same positive outcome at a lower cost using a different approach.

These comments from Craig Kirsner are not definitive. But if you have variable annuities in your portfolio or are being encourage to buy one, I advise you to think again.

by Craig Kirsner, July 31, 2018

One of the most misunderstood investment strategies I’ve come across over the past 25 years is the variable annuity. When I audit existing variable annuities, I get the facts about them by calling the insurance company directly rather than the broker who sold them. Why? Because I believe you should trust but verify, and I like to get my information directly from the horse’s mouth.

When I call the insurance company, among other questions, I ask: What are all the fees? What is the risk? What are the features? After going through that drill numerous times, I’ve pretty much seen it all. Based on my experiences over the past 25 years, the following are the seven most common myths I’ve learned about variable annuities and the facts dispelling those myths:

Myth #1: A variable annuity is a suitable investment for a retiree

I typically work with high-net worth clients, but regardless of your means, your investing goals and strategies evolve as you grow older.

Early in life, you were probably happy to ride with the ebb and flow of the market, waiting and hoping to hit that investment “home run.” And why not? Suffering a loss now and then didn’t bother you because you were certain of a rebound, and you knew you had plenty of time to recover, long before retirement.

But years pass and investing approaches change. Entering retirement, most people start thinking about protecting and preserving what they have, not making a big splash in the market.
You may have heard it said that these days the return OF your principal is more important than the return ON your principal, and that is definitely true for most of our clients. That’s why the variable annuities some retirees count on for a regular income may not be the best route to take. Which brings us directly to Myth #2.

Myth #2: Your money is safe

People are often led to believe by their brokers that with variable annuities their money is safe, which couldn’t be further from the truth. Your money is invested in mutual funds with no real protection of your principal.

The name of the annuity pretty much sums it up: “Variable,” as in the principal varies, unlike a fixed annuity, where the principal is guaranteed by the insurance company.

Continue reading HERE: https://www.kiplinger.com/article/retirement/T003-C032-S014-7-myths-about-variable-annuities.html

The Bull Market Could Be Speeding Right Into a Brick Wall

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.

Stock Spotlight

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).