Stocks Rise Again As The Macro Backdrop Grows Stronger

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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January 2, 2020

Stocks: AMD, AMZN, JD, CRM, GE

Macro: SPY, Fed

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Stocks keep going up. I have to say that I haven’t seen anything like this for some time. It is in a way as if all of this pent up demand is suddenly flooding into equities. 

Some people will point to the increase in the Fed’s balance as part of the reason; I have my doubts about that. First off, the Fed started increasing its balance sheet in the middle of September; the equity market didn’t take off until the end of October. 

Secondly, several factors are contributing to the rally, the Fed’s easing cycle on rates, a pause in the trade war, a potential Brexit deal, and an improving macro backdrop. Suddenly, the world appears to be a much better looking place.

assets

QE or Not QE

I know a lot of people think the Fed is conducting a secret QE program, but it isn’t. The Fed is increasing the balance sheet through the purchase of short-dated maturity bills. The purpose of QE is to purchase long-dated bonds, with the intention of driving down interest rates on the long-end of the curve. Remember, monetary policy doesn’t control the long-end of the curve. Therefore the only way for the Fed to drive rates on the long-end lower is through QE, that is not the case here. The Fed is merely adding back liquidity in which it drained; it is not looking to drive rates on long dated notes and bonds lower. I’d hope this next chart clears that message up.

In case it didn’t, here’s the next chart.  

Ok now that, that is cleared up.

The rush into equities appears to be a push by investors to get into stocks. From most standpoints, equities are no longer cheap. They are fairly valued, and while that doesn’t mean they can’t continue to rise, what it does mean is that one must take some caution. 

S&P 500 (SPY) 

What concerns me the most about the rally, is not that one is happening, remember I’m the guy that thinks the S&P 500 is going to 3,600 this year, but the speed of the rally. Markets that rise rapidly without pause are troublesome. Let January 2018 serve as a reminder. What I would like to happen is a gentle rise from here, with stocks increasing to around 3,400 by April. That would suit me fine.
S&P 500, spy

AMD (AMD) 

AMD looks flat out scary at current levels. According to my charts, the stock is at an all-time high. Meanwhile, the stocks PE ratio is now at 33 times one-year forward earnings estimates. This isn’t obscene, but considering that the average PE ratio in the top 25 holdings of the SMH ETF is 20.6, with a median of 17.5, it’s not cheap either.

One should probably be careful at these levels.

amd

Amazon (AMZN) 

Amazon had a good day, rising to around $1,900, this is a significant level for the stock. Over the past few weeks, the shares have struggled here, but a break out probably sends AMZN back to $1970.

amzn, amazon

JD (JD) 

JD had a strong day. I had noted around lunchtime that resistance would come around $37.20, and by days end, the stock blew right through that level. The next resistance level to watch for comes at about $40. Mid-day premium content- Stocks Showing Signs Of Weakness

jd

GE (GE) 

GE went right through a symmetrical triangle and appears to be on the road to $12.30.

ge

Salesforce (CRM) 

Salesforce appears to be on the verge of a very significant breakout, which could be the start of a massive leg higher for the stock.

crm, salesforce

Until tomorrow 

-mike

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results. 

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