It’s getting hard to look at the bright side lately.
Here’s where we stood as of Thursday: the Dow has shed more than 800 points over the past two sessions (despite the late-session rebound yesterday), the S&P and Nasdaq are in correction and the small-capitalization Russell 2000 index is a 5% drop shy of registering the 20% drop from a peak that typically qualifies as a bear market.
But there are small sparks of defiance and some calm making the rounds. Doug Kass, the prominent hedge-fund manager at Seabreeze sent a note out to clients recently, saying that based on his calculations, upside reward vs. downside risk are about equal right now.
He sees the S&P 500 trading between 2,550 and 2,775 in the next three or six months, and that would mean the large-cap index is somewhere in the middle right now, so not exactly dire. If this market gets weaker, Kass says he’ll get longer and has been making small moves to cover a “possible improvement in market conditions in the seasonally strong period that lies ahead.”
Our call of the day is among those looking for opportunity in the face of all this gloom. It comes from Kristina Hooper, Invesco chief global market strategist, who says investors should be thinking about this beaten-up sectors they may have wished they had gotten into awhile back.
“I do believe tech has been punished and that to me is the greatest area of opportunity,” said Hooper, in an interview with MarketWatch, and adds that Chinese tech stocks are in that group. “Party of why we've seen U.S. tech sold off so much in the last few months is that if we look at geographical revenues, tech has the highest percentage of revenues that come from outside of the U.S.”
She uses forward 12-month earnings to size up different sectors right now, nothing that staples are at 18 times those earnings, utilities at 16.6 and tech is just at 15.6. Health care also looks the most attractive from long-term revenue and earnings growth potential, but tech has been hit harder, making it a “special opportunity,” she said.
Hooper hasn’t always had such a rosy view of things, in fact she has been negative on the stock market right up to October, because she didn’t think investors were taking seriously the potential for trade wars between U.S. and. Then companies started talking about tariffs increasing input costs, and then the International Monetary Fund downgraded its 2019 growth forecast for China and the U.S.
“From my perspective, this really altered market attitudes toward tariffs. Suddenly it became a pretty significant risk,” she said. Fed Chairman Jerome Powell’s “long way from neutral” comments this autumn also got investors walking on eggshells.
Fast forward to where we are now, Hooper says overall, valuations still seem a bit frothy, and there are some reasons to be concerned. Still, technology and internet-related stocks seemed to be solid when it comes to projected revenue growth. In the third quarter, 92% of information tech earnings reports came in above expectations, she said.
No doubt it is tough to think about sticking a toe in these markets right now, and Hooper says investors should just try not to time the market. But many of them have cash on the sidelines that they may wish they had used more tactically.
“So while there’s no way to know when it is a perfect opportunity…tech stocks represent an opportunity just because revenue growth and earnings are still positive, so for those who have patience and a long enough time horizon, they still mark a relative opportunity,” she says.
Dow, S&P 500, and Nasdaq futures are headed lower. That is after the Thursday’s wild action, which saw the S&P, Dow, and Nasdaq stage powerful intraday reversals.
Gold perked up, while crude was mixed and the dollar virtually unchanged.
European stock markets are edging higher, while China stocks were mostly unchanged, with the rest of Asian markets putting in a mixed showing.
What happens when Gen Y and Z combine? It is long-term bullish for the U.S. economy starting in the 2020s, says Morgan Stanley in a new report. Ellen Zentner and a team at Morgan Stanley.
Those aging Boomers will sure, drag on the economy, but it is Gen Y, aka millennials, to the rescue as the country’s biggest cohort in 2034. “And with Gen Z’s leading edge now graduating from college and entering the labor force at an opportune time, these two generations will soon join forces,” says the report. The good news for the U.S. is that the competitive edge is ours as the rest of the G-10 will be dealing with shrinking populations.
Here’s our chart of the day that shows just one benefit of that youthfulness to come. They will be spending more, just as the boomers drove strong consumption growth in the 1990s.
So, thank a millennial near you today.
Altria Group the maker of Marlboro cigarettes, announced that it was making a $1.8 billion investment in marijuana producer Cronos Group Inc. as legacy companies continue to look for ways into the marijuana industry.
A smattering of earnings emerged, with shares of Big Lots sinking after reporting a third-quarter loss as expenses rose and the discount retailer lowered its earnings guidance for the fiscal year.
Another big data dump is coming for Friday, with payrolls for November in the spotlight, along with the unemployment rate and average hourly earnings. Following that, we’ll get wholesale inventories, the consumer-sentiment index and consumer credit.