Opinions
Paul Thornton A Comment -- General Comments From an Expert A Commentary COMMENT Jun 25, 2010
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Premium contentHis team has been highlighting 4 developing technical negatives that suggest equity markets are a bit stretched.
At the start of the year they were very cautious, looking for the bigger correction that happens every 3-5 years. Thinks we got that from Feb-April. They recognized that it was a tradeable low, but didn't realize it was going to be "the" low. The recovery was really quick. At the end of May/early June, they were telling clients there was a medium-term rally with upside into August and also that a new 3-5 year cyclical bull market was underway.
What they've been noticing over the last couple of weeks is that investor sentiment is starting to get a bit too bullish. We've had a 35% move off the lows. The other thing is that seasonality is telling them that August and September are typically the weakest months of the year. So that's looming.
Short-term price momentum has been stalling on a variety of indices. Underneath the surface, a lot of the leadership names that were leading this rally are showing signs of giving up the ghost.
All these things together tell him there's going to be an air pocket of 5-8%. But he'd be using that air pocket to add exposure, because his team thinks we're in a new bull cycle that has upside into the second half of 2027 and first half of 2028. This will be a common theme of today's show -- most names mentioned could benefit from investors waiting to add exposure during the potential upcoming correction.
Because the tech sector has been so bloated, that space could see a correction beyond the typical 5-8% that you'd see in other sectors. Based on the beta of a stock.
In all his conversations with professionals and savvy people, not a single person says "Yup, this is how it should be." Most people think there's a disconnect.
Longer term, if you look at the interest rate policy we've pursued since the financial crisis of 2008, it has destabilized the bond market to the benefit of the equity markets. So equities and valuations have benefited. At the same time, we have an ongoing new paradigm as it relates to AI. And that's feeding off of itself too.
So it's a number of things happening all at once. At his firm, they just look through all of that and assess where we are today in relation to a long period of history, and where are we going in the future? They still like the stable fundamentals of the companies they own.
The theme that will most likely come through in today's show is "For new money, wait for a better entry point."
What's interesting about the negative reactions in April, and earlier this year when the tariff news first hit, is that it wasn't the general economy stocks that were impacted. It was the tech stocks. So he hesitates to say where the market's going to go based on the general economy.
He's not too concerned with trying to figure out where we are in the cycle. It's really driven by policy. Right now, policy is saying we're going to cut rates. The US President is saying we're going to cut rates. So the market has given an almost-Pavlovian response by pushing up valuations.
On the overall economy, real-time data doesn't look very good. Port landings, freight traffic, trucking company and courier results all show problems. Consumers aren't necessarily getting stuck with tariffs. It's the retailers, importers, and manufacturers that are swallowing the extra costs for now. Once those start to get passed through, it will start to hurt the consumer.
Consumer discretionary is the worst-performing sector in the S&P this year, and that shows you where the limited impact is. But the market as a whole has been able to power through that.
Fall is the weaker period for equities, so he's hoping to see some opportunities. But he's not super-optimistic.
Good place to get some income. Nice spectrum of companies with higher yields, lower yields, higher growth, and less growth. He wants to have a mixture, but also a core position. He's tilted more towards natural gas than oil, because fundamentals for nat gas in Canada look pretty good relative to the oil fundamentals (sideways market barring some sort of crisis).
Still thinks both the Canadian natural gas and oil stories are positive. CAD below 70 cents makes us more competitive as well. US shale production may or may not last at current levels -- both in terms of capital required and lifespan of reservoirs.
Don't divest. Instead, hunker down in a few core names. See his Top Picks.
Investing Mistakes 101: Too Much Focus on The Short Term
All investment eyes were on exactly one data point this week: the consumer price index (inflation) number in the United States. Next, everyone will shift to corporate earnings reports. Sure, these are important when looking at the market, but one economic number — or one quarter of earnings — should not form the basis of your entire investment portfolio.
We know many investors who will sell a company after one bad quarter. But the best companies play the long game: focusing on long-term gains, even spending more money in the short term to get there.
If you own a stock, you should strive for at least a five-year holding period: you want that compounding to work for you. Looking so closely and reacting to a 90-day period out of 1,825 days (not counting leap years) is likely doing your portfolio a huge disservice.
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Beware of online scammers. Someone is perpetuated a fraud under his name, promising returns and such. He would never do that on social media, except offering advice on YouTube. The Fed this week: What will they do about the future? Trump wants to take away their independence. Many expect the Fed to open the door towards a rate cut. He's not sure, expecting them to be more hawkish and September will be a coin flip based on data (job losses).
He loves alternative strategies, because these funds take no or little direct market risk. Instead, they pick the best ideas and go long, with leverage, then short some names to create the leverage of names they don't like. Few managers are good at this. A manager called AQR, in Connecticut, is one he uses and likes. He loves multi-strategy funds that will be huge in coming decades.
Population growth is based on net immigration and births minus deaths. 20 years ago, Washington forecast a 1.4% productivity rate. The actual growth to 2025 is 1.1%. We need a lot of growth to climb out of this current debt. We're creating jobs, wonderful, but there's a lot of talk of AI to steepen productivity. Getting a liberal arts degree won't cut it in terms of where the growth will be in the future. Rather, the economy needs people trained in STEM research, those who can contribute to AI.