This is from my 9/1/16 stock newsletter (as of 9/1/16)
During the month of August 2016, stock market (the Dow Jones Industrial Average) went down by 32 points or 0.17% but at the same time our portfolio went up by 1.91% in 31 days. Annual return on the 10 year US Treasury is 1.6% and the yield on the 2 year treasury is at 0.75%. In 2014, only 14% of fund managers beat the market index. However we just started the month of September; historically, September is the worst month for the market and all market crashes took place in October. Also in September the Bank of Japan could decide to change course with respect to interest rates that could spook markets all over the world.
The US Federal Reserve could raise rates in September too which would be a blow. OPEC once again meets in September and that too could send jitters around the world. However some believe that OPEC has become impotent. Technical analyst Spiro of ORIPS Research Studies who studies oil charts say that a barrel of oil (WTI) could easily go up to $72- a 50% rise! Recently we went back down to $39 and rose sharply to $50 due to short coverings. However he see oil going down during the first 2 weeks of September. Technical analysts believe that gold will go much higher but that is not a good sign for other markets; historically speaking. At the same time, historically, October to December or October to May is the best for the market. We do not have to fear a correction or a crash; if that happens we would be able to increase our holdings in good stocks and decrease the average cost per stock. Eventually we will have a huge return on the total portfolio. After all, our GE holding grew 61.9% in 373 days or approximately 1 year! At the current rate, it would take about 40 years to get that on the 10 year US Treasury!
Hedge funds usually cater to people who have hundreds of millions or billions of dollars. Last month, while equity fund inflows grew, hedge funds saw their largest outflow since 2009. On 8/22/16, per CNBC, cash inflows in to stock funds was at an all-time high with most going to index funds. During the first part of 2016, $160B went in to index funds while $200B came out of managed funds. On 8/18/16, Chief Investment Officer for Wells Fargo, James Paulson stated that he believes that the global economic recovery is in its early stages. On 8/10/16. Jeremy Siegel, professor at Wharton School of Business who correctly predicted his market rally predicts it has another 15% on the upside. CNBC experts who study market trends say that finally money on the sidelines is coming in to the market and it will be stronger after the Labor Day when everyone returns to work after summer vacations. Technical analysts are the best when it comes to making predictions about the market. After we have been in a narrow range for the past 2 years, tech analyst Chris Verrone now states that the market is ready to go up much higher. The fact the semiconductor index PHLX has risen more than 20% in 2016 is seen as proof of future market upside by Chris. On the other hand, technician Steve Grasso stated that if the Feds have an interest rate hike, the market (S&P 500) could go down to 2043. To me that is only 2% and it is not important at all-just another buying opportunity.
Digesting all this information, my conclusion is that during the next couple of months we could see a correction in the market but the probability is high that we could see new highs in the market prior to January 2017. However this bull market is getting close to its end. The next bear market could be very brutal. When the interest rate on the US Treasuries go up, most investors will sell equities and buy bonds. This is what happened during the 1987 crash.
June 2016 to July 2016, new home sales grew by 12.4%-highest since 2007. At the same time existing home sales fell by 3% as there were less homes available for sale. Most of the new home sales took place in the south.
Apple- Apple will introduce its newest products (IPhone 7) next week. It is difficult to say how the market would respond. On 8/16/16, Apple announced that it would invest more money in China. On 8/21/16, Samsung surprised the market with their Q2 earnings; reporting a 56% increase in their mobile phone revenues-compared with Apple’s meager 2.3% for the same period.
Disney- On 8/5/16, Jim Cramer stated that over the long run ESPN is not going to have a negative impact on Disney’s share price. He went on to say, ”Those who think more short term may end up trading this thing right in to the poor house”.
Twitter- Twitter which plans to stream 10 Thursday night games has set its sights on a bigger screen to capture more viewers, the company is creating an app for Apple before the NFL season kicks off in September, a person familiar with this matter told San Jose Mercury News on 8/16/16.
GM and Ford- Three of the biggest car makers saw their sales revenue decline 3% to 8% from June 2016 to July 2016. Car sales dropped by 25% as most of the sales were for SUVs and trucks. Most experts believe that the 6 year bull run on auto stocks is over. Ford alone saw an 8% decline in sales from June to July 2016 while GM saw a 5.2% drop for the same period. When interest rates start rising, autos being the classic type of cyclical stocks will see a bear market. Also as it has happened so many times in the past, people have got addicted to low gas prices and buying gas guzzlers. Within the next 12 months if the price of a gallon of gas goes up to $6 to $10, these people are sure to have a difficult time paying for their monthly expenses.
Wish you a nice September!