Lots to cover today…

Lots of subjects to cover today. We’ll look at the economy, sectors to trade within the economic cycle, and technology. I’ll point you towards some research I’ve recently posted on energy and  international investment opportunities. I’ve adapted a more on-point manner with these important topics to get this information to you efficiently.

Risk off

To start, lets look at some signs of risk-off appearing on the markets. This adds to my comments regarding junk bonds vs. SPX in my last blog – here. The chart below compares the SPX small cap (black line) vs the SPX large cap (red line) indices. Note the divergence when small caps start to underperform. I’ve highlighted the correlation between small & large (pane beneath price chart) which is normally high. The bottom pane is comparative relative strength. Negative divergence by the small caps indicate a risk-off environment. This can be a leading indicator of trouble for the S&P 500.

Energy

Recently I asked if there were any topics you guys would like me to cover. Two readers asked me to write about the energy trade. I have actually covered this subject quite thoroughly in a recent video. It’s pretty informative, if I do say so myself. Here is the video link for those wondering what oil and the producers might be looking like over the coming months: Oil Outlook – ValueTrend

Its the economy, stupid

You know I’ve been harping about the Canadian Liberals regarding their complete lack of awareness of basic supply/demand economics. Sadly, many modern Liberal Governments, including in the USA, have in that common. Historically, most Liberals were aware of how overspending impacts the economy, inflation dynamics, and how to do basic math. Harken back to the good old days of Carter, Clinton/ Chretien, Martin.  Things have changed, but not for the better. Take a look at the chart below – it echo’s my comments here re the Canadian budget. While the Federal Reserve aims to “fight inflation” – US government spending is surging, up 13% year over year. You can’t fix stupid.

You are here

I’m not a Keynes fan, but no matter… here is an interesting perspective by a US PM quoted recently:

“Keynes work shows 16 months from the start of a hiking cycle to peak impact. Recession into Q2 next year” 

I posted this chart a while ago with my notation of where I think we are now.  It tells us where the value is within sectors during differing phases of the economy. Based on recent stability in Staples, Utilities, Healthcare we are likely on the verge of rolling into recession. Believe it or not, that’s when certain sectors like Real Estate and Financials will become attractive. Followed by Technology and Cons. Discretionary stocks. These sectors become attractive as their beaten up value becomes apparent to “smart money”. Smart money starts rolling into them ahead of the recovery phase – think Warren Buffett loading up on bank securities during the tail end of 2008/9 banking crises. First things first – recession means staying defensive….for now.

Don’t expect the tech sector to save the market

“Despite profits declining less than feared during the first quarter, estimates for the second and third quarters are continuing to be dialed back. Projections for tech-company profits in the S&P 500 Index for the second quarter are calling for a 7.3% contraction from a year earlier, a deeper drop than the 6.3% drop for the period forecast at the end of March, according to analyst estimates compiled by Bloomberg Intelligence. In the third quarter, they’re now expected to decline 1.5%, compared with a 0.6% increase anticipated five weeks ago.” Bloomberg News

Here’s the XLK (technology) ETF. Right at that wall of resistance. Will it break out? Out of favor seasonals, and lower earnings, might have a say in that potential. How will that affect the S&P 500 with its massive weighing in the sector? As Clint Eastwood’s Dirty Harry character asked: “Well, punk, do you feel lucky?“. I don’t.

6 technically attractive global index ETF’s

Perhaps its time to start looking for markets that are non-correlated to North American markets for investing, should we wish to profit in the current water-treading consolidation pattern here. Tomorrow (Friday May 12) I will be posting a video presenting, in my opinion, some highly attractive markets that every investor should consider. Here is the EWJ (Japan) ETF chart – which is just one of the potential opportunities I address:

 

Don’t miss out

  • You should subscribe to the videos to ensure you get them in your email each week. I cover topics NOT covered in this blog. Like the energy video, and the international ETF’s video noted above. And, I interview amazing guests with alternative ideas. Click here to subscribe to the Smart Money, Dumb Money Show.
  • You should also subscribe to receive our VT Update newsletter, if you don’t already. I’ve been writing this newsletter for clients & non-clients – originally in paper format, now as an email newsletter, for about 30 years! The VT update that non-clients receive is edited for individual stock names – but everything else is there. This includes our current asset allocation moves, and neartermed macro portfolio positioning.  Subscribe along with the blog by clicking here.
  • Heads up! I’m on BNN on Thursday May 25th at noon. I’ll give you a heads up next week, and give you the contact info where you can send in questions. Remember, I try to get the producers to give my readers priority, so be sure to mention you read the blog on the show. Also, it helps if you inject that fact when you phone in for the viewers to hear.

 

 

 

4 Comments

  • Keith, with interest rates high and on pause and inflation that should drop big time in May and June when compared to monthly inflation for the two months in 2022, is now the time to be loading up on US Treasury Bonds? Short, mid or long term? If US inflation gets to 3 plus % in June, would that crank the equity markets up sooner than expected?

    Reply
    • Best to follow the charts rather than fundamental musings. For example–the TLT (US 20 year long bond) is basing. A breakout through $110 would be quite intriguing. That would be my signal.

      Reply
  • could Small Cap vs. Large Cap be used as a Breadth indicator, in place of Trans vs. Dow?

    Reply
    • Good question! No, they differ in that INDU vs TRAN are two sides of the production cycle, so it is foretelling if the side that MOVES the stuff starts to diverge vs the MAKERS of the stuff. The comparisons of the small vs large capped indices, or JNK to large capped stocks, is more risk appetite work.

      Reply

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