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Behavioral Finance, ‘Certainty’ As An Investment Style And Other Key Themes For 2019
When last we checked in on Wells Fargo’s Chris Harvey, he was riffing on Clint Eastwood classics and lamenting the fact that "Santa got mugged on the way to the rally".
Or wait, actually that's not true. That was the second to last time we checked in on Chris. The last time we checked in on Harvey, he was slashing his 2019 S&P target to 2665 all the way from 3079 based on what he called "a more comprehensive understanding of the Fed’s near-term philosophy and the belief that it will cau
If he is correct on the economy/earnings value stock earnings will have more risk to the downside than growth earnings though all will see continued multiple contraction.
This is a guy that had a 3079 target so one his precision questionable (why not 3078 or 3081) and two he did not see this coming.
Sure he does bring up good points but there is a lot of driving looking in the rear view mirror going on.
But i do agree mgmts will be safe to be cautious on forward guidance BUT the market has already priced some to most of it in barring a severe recession.
I don’t mean to beat up on him, I just am not sure there is anything insightful here.
“This is a guy that had a 3079 target so his precision questionable (why not 3078 or 3081)”
i mean, they don’t just pick these numbers out of thin air.
You could argue that ultimately, it amounts to that because in the end, it’s an exercise in futility, but you should be aware that there is a process here. And your comment also suggests that you think there’s something more “real” about round numbers. Of course that isn’t true. Why would 3,000 (for instance) be inherently more realistic than 3079?
But the overarching point is that yes, there is a process. And here is how he gets to his numbers, both 3079 and the new target, 2665:
https://heisenbergreport.com/wp-content/uploads/2019/01/Wells.png
expectations can become at least partially self fulfilling and reduce further macro data in the next following months
logistics redesigned as management realizes that Trump is not giving up with his idea of stopping delocalization outside USA
it follows that guidance will be prudent or somehow a bit pessimistic
So all the above will translate into a higher premium risk (risk aversion) and PE will move/remain lower.
Two months ago you posted a table by SG as of 26/10/2018, it was a matrix relating equity risk premium and 10Yr US yields. For a yield of 2.75% there was 2695, 2482, and 2205 for a risk premium of 3.25%, 3.50% and 3.90%.
SG preferred scenario was 10Yr between 3.00 and 3.25% and risk premium between 2.75% and 3.25% for a min max SPX range of 2301-2949. The central value would be 2600-650, basically my idea too. With volatility around 20% (average of 2019) it can oscillate plus / minus 10% around that central value depending on waves of pessimism and exuberance.
We saw that buybacks are not enough to support prices (they can actually be damaging in an environment of lower and lower prices, creating trading losses and decrease profits). A lot will depend on the retail investor, we have to see inflows into equity funds again. Without them the systematic flows will just keep the market volatile with accelerating momentum on both directions but no clear direction. The more the choppiness and volatility and the more the retail investor will avoid the equity market. Emphasis on investor, I’m not writing about e-traders that want to ride the intraday volatility (but 80% of them will be slaughtered, closing their accounts in the next 6-9 months, whipsaws don’t forgive).
I agree that stock picking can be a key determinant for a successful 2019.
The world and most of the things in it are driven by extremely complex intertwining pathways with much cross talk between pathways. You know that already or at least you think you know that already. But what you don’t know is that which you don’t know that you don’t know. Three apparently non coordinated events occurring about October 1, 2018 got you here today: #1. Pence got toChina and says the US means business with the trade war #2 Powell giving his hawkish appraisal for the us interested rate environment #3 the assassination of Koshogi in Istanbul. These events started the chaos in the already strained financial system. Not all of the stress has been received. The system will try to play catch up in an attempt to recoup the December losses. The. system will use high frequency trading techniques to try to catch up. There will not be enough liquidity to provide price stability with the high frequency trades. Then the feather will come. Apparently, out of the blue. What will happen then is what I know I don’t know. Good Luck.