Welcome To ‘Blow-Off Top’ 2020
"Melt-ups" are so passé - it's all about "blow-off tops" now.
Cite what you will. Maybe it was solid retail sales spiced with a better-than-expected Philly Fed. Or perhaps you'll be inclined to point to the Senate clearing USMCA. Or homebuilder sentiment. Or you might suggest that if Wednesday was a "fade the news" day following the signing of the "Phase One" US-China deal, Thursday was a manifestation of lingering optimism around an interim resolution to the trade spat.
Whatever you want t
H-Man, the only thing that will run the train off this equity climb will be an “event” which is not flashing on the dashboard. The dashboard is all green, no yellow or orange flashes. Euphoria is gaining by leaps and bounds while waiting for the “event”. As you have noted, the “shorts” are waiting in the wings, cautiously waiting for the “event”. Meanwhile the “longs” own the day until we see that “event’ which is not a burp but rather a full puke.
Which is why most of us should be long equities. You don’t stand in the way of a blow off top. The question is how long?
If you are normally 70% equity, should you be 80% equity (lean into this) or 60% equity (lean back from this)?. Or just stay your normal 70%?
The “event” could be:
Effort(s) by foreign govts to embarass trump into the election
Geopolitical event – Iran, NK, etc
Bond selloff forcing the Fed to QE
Earnings disappointing again
Eco data doesn’t respond – cons pulls back, biz spend stays subdued
Wage inflation
Poor jobs report due to biz pulling back
Talk of monetary policy impotent
No ability for fiscal policy
Dem win in Nov
Some debt issue – car loans, etc
What can go right?
Earnings grow more than expected – but do PEs contract?
More QE with belief it will eventually work
People believe there is no risk
No chance of a recession for the next 2 years
People willing to buy historic margins and near high PEs
Inflation doesn’t pick up and deflation held at bay
Trillion $ deficits don’t matter
Govt chaos remains positive
Productivity finally picks up
Lets see earnings estimates are up 6%, PEs near 20 for near all time high margins and 30-40% of the SP500 in secular decline.
Nothing can go wrong……………….
Stocks have doubled plus 20% in 12 years with earnings up 60% ex corp tax cut. Rates historic lows.
Nasdaq has doubled in 19years.
My best guess is it will take 20-30 years for the SP500 to double from here.
I think I will trade them around. There will be much better buying opportunities in my mind.
Nothin’ but “Blues Skies”…
Like my rich uncle told me decades ago, “You’ll never go broke taking a profit”.