Sunday , 16 December 2018

It’s Time To Buy Aggressively – Here’s Why

According to Fundstrat Global Advisors’ Tom Lee, the end of October was the bottom for the markets. Signals from technical analysis point to a potential bounce may push U.S. equities up 10%, even more, by year-end and, therefore, suggests that investors should buy aggressively after the recent sell-off. Deutsche Bank is also bullish on U.S. stocks as is Goldman Sachs. This article puts forth 8 Good Reasons to Be(come) a Bull.

 

This version of the original article, by The Fortune Teller, has been edited* here by munKNEE.com for length (…) and clarity ([ ]) to provide a fast & easy read.  For the latest – and most informative – financial articles sign up (in the top right corner) for your FREE bi-weekly Market Intelligence Report newsletter (see sample here)

Two years into the first term of his presidency, U.S. president Trump holds stock market bragging rights: the S&P 500 has risen 28% since Trump’s election in November 2016 to the eve of the midterm elections. This surpasses the performance during the same time frame under any other president over the past 64 years.

With only two months to go till 2018 comes to an end, the S&P 500, Dow Jones and Nasdaq 100 are on pace for their 10th consecutive up year. If and when it happens, that would be a new record.

Based on the index closing prices, the Dow’s largest draw-down this year is 11.6%, right in line with its historical median for a calendar year (-11.5%). Putting it differently, we already made the annual “average sacrifice” this year.

The chart below shows why 2018 is, thus far, a difficult year for investors. A whopping 89% of global assets are in the red this year in U.S. dollar (UUP) terms, the worst of any year since at least 1901.

Despite earnings growing >20% Y/Y, 2018 (thus far) represents the third biggest calendar year decline in P/E ratio since 1976.

Many Good Reasons to Be(come) a Bull

1. Economy/Growth

…The U.S. isn’t only leading the world, by far, on that aspect, but taking into consideration where the current US ISM Manufacturing index is (57.7) and by how much the P/E ratio has declined (2-3 points) – investors should be extremely optimistic and bullish on stocks for (at least) the next 12 months…

2. Stimulating China

…President Trump is planning additional tariffs (on top of the $250B already imposed) on Chinese imports, should his upcoming G-20 meeting with Xi (11/20/2018) fail to ease the trade war.

3. Oversold Territory

The S&P 500 index has hit (end of October) an oversold extreme from which odds favor a bounce.

4. World Valuations

It’s not only the U.S. P/E ratio that now looks attractive. The same is true for the global P/E ratio which is now at 16.6, down 27% over the last two years.

Nonetheless, the expected EPS growth in the coming 12 months for Emerging Market companies has fallen to only 3.7%.

5. Buybacks

More than $7 trillion has been returned to shareholders in the form of buybacks and dividends since the current bull market started in March 2009. That’s equivalent to 40% of the value that stocks in the S&P 500 added during that stretch.

6. Job Market

U.S. wage growth jumped in October to its highest rate in almost a decade, while the pace of hiring rebounded.

  • Non-farm payrolls rose by 250,000 in October, eclipsing economists’ estimates for 190,000.
  • Average hourly earnings rose 0.2% M/M and 3.1% Y/Y – the highest level since April 2009.

7. Healthier Balance Sheets

S&P 500 net debt to equity is looking better than ever before.

8. Household Debt

U.S. household debt to disposable income has fallen to below 100, for the first time since the subprime crisis.

The Next Stop

Deutsche Bank (DB) is bullish on U.S. stocks…saying that this earnings season is essentially a return to historical averages, and that underlying earnings growth remains strong.

Using daily data going back to 1927, the typical daily progression of the S&P 500, through the average year, gives hope for a Santa Claus rally…with average gains of nearly +3% expected into year-end.

Interestingly, the two former largest investment banks disagree on the near-term future direction of equities. While Morgan Stanley (MS) suggests to sell market rallies, Goldman Sachs (GS) now sees a good opportunity to buy.

While MS believes that the S&P 500 could move down to 2,400, GS still sees the index climbing to 2,850 by year-end.

Image result for Morgan Stanley Says Sell Rallies as Goldman Sees Chance to Buy

According to Fundstrat Global Advisors’ Tom Lee, end of October was the bottom for the markets. Signals from technical analysis point to potential bounce, he says, thus may push US equities up 10%, even more, by year-end. Lee, the head of research at Fundstrat, suggests investors should buy aggressively after the recent sell-off. So far, he has been spot on as the S&P 500 already gained 4% since his initial call to buy the dip. Lee maintains a year-end price target of 3,025 for the S&P 500, implying a potential from another 10% from the current level.

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Bottom Line

We, at The Wheel of FORTUNE, remain bullish and we advised our subscribers to buy the dip and remain fully invested into year-end.

[Editor’s Note: The author is receiving compensation from Seeking Alpha for pageviews of his original article as posted there so please refer to it for the unedited version.] 

(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

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