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RoboStreet – June 21, 2018
Small Caps and Big Tech Power Higher
While headlines of the Dow being down for the year and the S&P 500 ahead by less than 3%, there is a sizzling summer rally taking place among big-cap technology and small cap stocks. Shares of most FAANG stocks are surging to new all-time highs with Apple the only member to lag. And it is interesting that the Nasdaq is trading to new highs without the participation of Apple, something that many analysts thought could not happen. Along with FAANG, shares of Microsoft, Alibaba, Adobe Systems, MasterCard, PayPal Holdings Intuit and Salesforce.com are also in the limelight. And there are many others (Twitter, Square, etc.)
Both sectors share some common traits and are quite different in how they are viewed by investors and traders. The strength of the domestic economy is certainly at the forefront of why these two market sectors are outperforming, but one could say that about any sector. The common denominator is that small-cap technology companies are leading the Russell 2000 higher. The strong dollar and a variety of currency crises in several emerging markets are driving fund flows into U.S. stocks with the force of a firehose and that money is finding its way into mostly technology stocks.
When one considers the advantages of owning tech, it makes a lot of sense. There is limited exposure and risk to inflation, government regulation, commodities, interest rates, elections, and geopolitics. The widespread trend to automate and move business online is also a driving force in how investors see a long glide path of opportunity to own companies in the right technology sub-sectors. Business investment into software and hardware upgrades, as well as capital expenditure in subscription-based services is at the highest level since 2014 and is forecast to continue to be robust for the remainder of 2018.
The market is in what could be considered a quiet period where some end of the quarter positioning of portfolios is at work with professional fund managers trying to window dress their holdings to look as if they have owned all the right stocks during the second quarter. The end of June tends to soften, followed by a firming up right after July 4thwhen the second quarter earnings season kicks off. And if FactSet data regarding forecasted earnings is even close, the Q2 reporting season is going to be full of fireworks. For Q2 2018, the estimated earnings growth rate for the S&P 500 is 19.0%. If 19.0% is the actual growth rate for the quarter, it will mark the second highest earnings growth since Q1 2011 (19.5%).
Some of the market headwinds that had occupied the minds of investors has diminished, providing more clarity for the bulls to seize the momentum. The yield on the 10-yr Treasury have declined from 3.11% to 2.91%. WTI crude has pulled way back from $72.70/bbl to $65.00/bbl since the end of May 2018. The Dollar Index (DXY), while still firmly higher, ran into some profit taking at the 95.50 level. The threat from North Korea has been dampened and the Italians formed a coalition government to calm the European bond market
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
The brewing trade war with China is on everyone’s mind, but even $250 billion of goods being affected is small by comparison to America’s $19 trillion economy. But that doesn’t mean there isn’t going be a negative tone that permeates the investing landscape when trade-related headlines cross the tape. Much of yesterday’s down session is being blamed on trade war chatter, and the Dow has been down for eight days in a row because of tit-for-tat tariff news.
All of this brings to me the very reason why we all need the power of artificial intelligence, or AI, working for us to navigate through choppy markets such as the present. My AI platform has been producing a consistent string of winners for investors to seize on that are breaking out to new all-time highs. It’s also helping investors avoid bottom-fishing for seemingly cheap stocks which may actually be still at risk of trading lower. My system screens and pinpoints where bullish institutional money flow is strongest, and this is where we get some of our best investments.
Case in point, we booked a solid profit in MasterCard (MA) back in May and am now looking for another opportunity to catch a good entry point on a big pull back for the market. I don’t see bad days as a reason to sell my favorite stocks, but rather just what is necessary to initiate or add to an existing position of those specific stocks that rank as high as a stock like MasterCard.
I don’t know what the catalyst will be to provide the market swoon that gets me back into MasterCard and other stocks I’ll add to the RoboInvestor Portfolio, but rest assured there are some headlines yet to be printed that will provide such an occasion. More importantly though, it is incumbent upon investors to have their short list of stocks to buy when the market does sell off and that’s the beauty of TradeSpoon’s RoboInvestor. We’ll only bring our members those stocks that are in their own separate stealth bull markets and the fact that my AI platform is accurate over 80% of the time means that same short list is as good as gold.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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