Where Do We Stop?
The Stay Invested portfolio was DOWN today: $218.49 (-0.20%)
Overall GAIN/LOSS YTD: +$3,502.97 (+3.41%)
Our benchmark index, the S&P 500 is UP Year-To-Date +5.47%
"Investing is like fly fishing, to catch fish your fly needs to be in the water."
― Clay Baker/Kelly R.
(I'm attribute most of this quote to my cousin Kelly R)
In my last post I said I'm a Cisco Bull, I still am. When I posted that statement CSCO closed at $45.03/share. Today CSCO closed at $45.75 but something more important happened. The 50 Day moving average for CSCO dipped below the 200 day moving average, indicating that in the near term we should see the price pull back and present an opportunity to buy; but not right away. I'll be looking for CSCO to either get TOO cheap, or for the 50 day average to rise back above the 200 day confirming the opportunity and the share price going higher.
Where do we stop
While the US economy is still growing, there is a general consensus that we are slowing; kind of
like being in a big truck that's trying to stop, but we just don't know where. If we stop soon, all is well. If we don't, then we roll off the cliff and see what a recession is like. There seems to be this constant recession watch among investors. The reality is we don't know when we're in a recession until we're actually in it; so predictions are really not very useful. In the past recessions have been caused primarily by the Federal Reserve raising interest rates too fast and too high in order to calm a strong economy and prevent inflation. For those of us with a long term investment perspective a recession is nothing to fear. We watch for the economic indicators of a recession and trim our positions carefully, building cash so that when our favorite companies are selling at bargain prices we're there to enjoy the sale.
My favorite economic indicator is earnings growth. In the fourth quarter of last year we saw 14% earnings growth, the projection for 1st quarter is 1.9%. There seems to be consensus that earnings will be in the low single digits. As long as that's true, be cautious and keep trimming profits to build cash. You have to Stay Invested to make money and you have to trim profits to keep money; it's a balancing act. If earnings growth goes negative, get serious about protecting your capital.
A good sign that businesses are investing in increasing their productivity is the growth in companies that sell productivity. Look, we're in a very tight labor market. There was an article out last week that talked about how Apple, Google and many other big companies are hiring people without college degrees and have an increasing number of jobs available as flex-jobs; work from home, etc. That's a tight labor market. It's during these times that companies have to invest in ways that makes their existing work force more efficient. Look at the performance of companies like Adobe (+6.9%), Salesforce (+7.56%), Workday (+8.03%), Tableau (+4.97%), ServiceNow (+5.55%) and others in the productivity space as an indication of how businesses are investing in themselves. While share buy backs have been at an all time high as a result of the tax reforms, capital expenditures are a close second with software being a significant contributor.
This week is a busy one for the markets, for most of my readers I'd recommend you turn off the financial news and look at stocks in a week or two. We just had Caterpillar and Nvidia report poor earnings, and we have Apple, Microsoft and Amazon reporting soon. These are heavy weights that move the whole market; basically they represent about a quarter of the S&P 500. In addition to big earnings reports we have a Fed meeting and China trade talks. In a volatile market, expect more of the same this week. The more catalysts we have for moving the market, the more extreme movements can be.
The S&P 500 closed today at 2,643 and some analysts are talking about the market retesting the October 29 low of 2,600; I think that's certainly possible. In fact we may retest 2,500 if we don't get some certainty back into the markets and our geo-politics. 2,500 to 2,550 would be a place where the market could shore itself up before moving higher. If we reach a meaningful trade deal with China, all bets are off and this bull will break through walls and ceilings to go higher.
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Keep Me Honest
S&P 500 declines to 2,350 or more (1-3-2019)
Healthcare and Biotech sectors outperform (1-3-2019)
S&P reaches 3,000 by year end (1-11-2019)
CSCO reaches $60/share (1-18-2019)
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.