Putting the Cork Back in the Bottle
Last week I wrote about groundhog day and then soon after news broke about a “mini deal” with China, and the UK and the EU have agreed to terms on Brexit. Yes, a lot can happen in a week on this rock that rapidly laps around the sun.
I caution however, don’t pop the champagne corks just yet. Brexit may actually have a deal that can be worked out; however, the China Trade deals still have a long way to go. I would call it a truce or compromise rather than a deal of any sort, with both sides making a handful of concessions that I feel delay any short-term escalations but does not create a path to a full deal. Anyone who has had experience in making any type of deal in China (including yours truly) will tell you that you when you think you have a deal, you’re probably only 3/10th of the way there.
Remember, the market has forces from many different directions that tug on it. The market is priced today on the expectations of results in the future. The hourly/daily price of the market is like trying to walk a tight rope in a wind shear. Except that every step you take moves the end of the rope another step away. As soon as the news dropped about a potential trade deal, the negative Nellies highlighted that this will hold the fed from cutting rates further.
Thankfully we are getting back to earnings, and a number of the major banks delivered results last week with mostly positive results. The start of the week had most analysts predicting a poor earnings season, and many predicting that the 3rd Q this year would actually be lower than the 3rd Quarter last year. From where I sit, I think we will come in around flat and I expect high single digit earnings growth between now and the end of 2020 for earnings, therefore I expect the market to return a similar figure.
I still believe any talk of recession over the next 12 months is premature and the more negativity out there the better, and the longer this bull will run. Yes, it’s contradictory, and that’s how you need to think about the market. Opportunity comes in the market when you are not with the crowd.
Our buy/sell popped back over my fair value number, but still remains range bound. There have been opportunities in individual names and that’s what we continue to focus on as we move forward. Inclusion and deletions of securities in the portfolios are based on fundamentals, while trimming and adding to existing positions are driven by technicals. And we are in a technical market right now.
Just as a reminder, fundamental analysis is based on management, earnings, price to earnings/book value etc. Technical is based on charts, including relative strength and moving averages.
With all that said, here’s the Buy/Sell
Source: MG&A
As always should you have any questions or concerns please don’t hesitate to call.
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