Harbor. Here Comes The Storm.

Times

change. But god it’s been nice. For years we rode that rising wave. Everyone had a great time. Now it’s curling if not crashing. Storms have come to our formally splendid seas. Many have harbored. As the placid and neat turned angry, utils have grown too expensive to buy. That’s how it goes. Did you grab your slice?  Upward and onward we go. Oops, we meant simply onward, and up and down.

 

The S&P can’t hold 2815 with either wet hand. Our fed’s given up attempting to predict what he isn’t reading. Our bull’s shuffling restlessly. Long term investors are rethinking their approach, as every spike simply melts away into puddles. Has your thinking shifted? Still attempting to build in that smart slow way? Yeah, us too. But we’re scattered.

 

Predictable pauses had for years led gracefully into plumy runs of joy and slap-happy success. We’re here to help you forget all that. The way forward feels different now, more difficult, and clearly less promising. We’re struggling to maintain focus. We’re ready to instantly sell any three hundred dollar move. But we did exactly that when ETSY reported, and were promptly left behind.

 

Market storm socks are stiff. Headwinds shift and gales whip ugly everyday. The warnings are in the water. Our markets now, as seen through five mega-leaders and their clutch of sectors. FANG will not prove a pristine harbor this time. Nor will healthcare. We’re all gonna get wet.

 

lights-1283073_1920

Don’t

say it.  Let us dream a moment longer.  Our market’s has been a joy ride for years, a scooter spin in a salty sea breeze.  It’s still all that, right?  Let’s see.  Growth has slowed, globally.  But our fed is suddenly quiet.  The trade war is still on the stove, but perhaps congealing.  Inflation is tame and earnings are surprisingly strong.

 

Yet, the steady sky climb of a decade has drifted away.  Warnings are in the choppy water.  We have an inverted yield curve and high corporate debt.  The White House has for a fourth time taken up a battle against the Affordable Care Act, and soaring drug prices have not been forgotten.  Both appeal to candidates charging the campaign trail.

 

 

woman, rain
Think again before holding healthcare into the heart of the campaign. This image may prove the most enjoyment on offer when choosing that route.

Equity

growth now flashes in baby fits and farts.  Just for fun each step forward is nearly instantly nullified by a playful tug backward.  Are investors also wary of another X-Mas Eve plummet?  Many predict exactly that.  Can anyone stomach a long term strategy with every growth gift summarily snatched back, or worse?

 

How much cash should you be holding now?  We’re at 45%.

 

Double-digit moves mount, yet few–almost none, sustain that momentum. Think cloud plays.  The leg-up that used to consolidate, now in wave-like manner simply slide away in a foamy hiss.  Don’t look this time for a FANGed salvation.  “Classic defense,” you say?  Utils and staples are either far too expensive now, or pure rubbish.  Think AEP, Conagra, or Kraft Heinz.   Even healthcare my not staunch portfolio bleeding this time.  Again, think Washington.

 

How it was

-BEFORE-

United Health Group(UNH), 3-30-19
Chart, UNH, 3-30-19
How it used to be. The long and dependable market ride is over. Additionally, UNH’s slice of the ACA and their pbm(pharmacy benefits management) businesses, are both in the political cross-hairs. Same goes for Centene(CNC).

    UNH beautifully displays the long steady climb of a sustained bull market.  EPS numbers displayed strength, supported by healthy revenues.  Market leaders had no use for “manufactured” beats. Cost-cutting?  Momentum doesn’t cost cut.

 

Cap-ex constituted the story for stellar growth companies–FANG for an example.  Conference calls repeated the term.  Margins expanded and were not celebrated by the individual basis point.  Investors bought the dip and rarely reigned in sky-climbing expectations. 

Amazon(AMZN), 3-30-19.
Chart, AMZN, 3-30-19
Call it what one will. There it is.

rain-3770216_1920

 

 

-NOW-

Secular

trend-driven growth has long been our way.  Think Cramer’s FANG gang.  Each of those companies has changed the way people live on a daily basis.  All were huge growth stories.  Now FANG has also changed-splintered even.  Facebook has done a Face plant, and now seems more a target than an opportunity.  What’s happened to analyst’s calls for a plus $200 target price?

 

FB’s recidivist dereliction concerning law and privacy have affected it’s viability as a momentum stock, and its’ profitability as a company.  Yes users are staying, yet advertisers are guarded and wary in their engagement.  The weak price action speaks for itself.

 

 

Few savvy investor believes management’s explanations.  What’s left to say following the latest FB Live murder broadcast mere days ago?  FB will again face congress, and this time real regulation will be brewing. 

 

United Health Group(UNH), 3-29-19
Chart, UNH, 3-29-19
A market keeping even the best down. Sometimes the best play is to do nothing. Some say a big drop is coming. When do they not say this? Some say “cash is king.” Oodles of cash on the sidelines feels like a waste, until the indexes fall out of bed big time.

Alphabet

is now also a raging target, as well as an ATM for an economically frustrated EU.  The company(GOOG, GOOGL) was fined three times in 2018 by the EU for a total of roughly $10b.  The newest EU fine, the fourth, was just announced this week.  Youtube is now being flagged routinely for unsavory content.  Offensive material such as the “suggestive” content concerning children, is pure danger to advertisers inhibiting a hyper-politicized environment.  

 

Netflix, NFLX, is unquestionably king of SVOD regardless of the ridiculous nonstop media jabber.  Yet Netflix will continue living on debt, while spending even more heavily this year.  U.S. membership is nearly maxed, while international markets are expensive and difficult to penetrate deeply.  Is Amazon the only true phenom remaining in the FANG growth story?

 

 

Amazon(AMZN), 3-28-19.
Chart, AMZN, 3-28-19
AMZN demonstrates the pattern “growth” displays now. Growth has no shelf life in this “late cycle” environment. Some moves are bigger, yet the pull-back pattern remains the norm.

Growth

remains, in a challenged haphazard place.  Esports continues to expand, but don’t look to EA, Activision Blizzard, or Take-Two, for sustained leadership.  Besides, any high multiple name will be beaten severely in the event of any serious market-wide revaluation.  Some predict precisely that.  FANG’s power has receded, leaving only AMZN and perhaps Netflix as real growth hopes

 

 

Always looking for the good stuff.city, rain, night

STOCKJAW

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Images sourced from Pixabay.

https://pixabay.com/en/photos/
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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
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