Posts Tagged ‘Stocks’

There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

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Everyone is asking when the market will crash.

They’re pointing to overvaluation… interest rates… the bull running way too long… P/E ratios… unemployment… wages… Europe and International melting down… etc., etc. *

Long-time readers know that I care most about one single, solitary metric:  The price of oil.

When oil spikes — like it did in 2008 — it affects the price of everything… and I mean absolutely, positively every item & service in the global economy.

That, of course, affects consumer purchases, which account for about 70% of all purchases and are truly the engine of the aforementioned global economy.

That, of course, affects corporate earnings, which affect stock price.

So, while everyone comes up with ever-increasing and complex ways to predict the market, I just keep my eye on oil… as I do every single day.

While the price of oil is subject to change at a moment’s notice… it’s been behaving for a while now.  That’s my signal that it’s safe to stay in the water.

 

*  P.S.  They’re also talking about global military actions and terrorism… which absolutely do have the ability to derail the market in the short run… those are — depending on whether you are short or not — unfortunately or fortunately constant wildcards in this connected, modern world we live in.