Here’s my complete 2018 earnings boom 2018 profit strategy Parts 1 and 2 with all seven picks. Part 1 originally ran on April 17. Part 2 originally ran on May 8.
With the report of first quarter earnings season from Netflix (NFLX) on Monday, April 16, we’ve moved into the heart of earnings season. In most quarters traders began putting on plays for earnings announcements a few weeks before reporting starts. And they’ll keep making new bets over the next three weeks or so. In most quarters buying shares or options on companies about to report makes profitable sense. But this strategy is likely to be even more rewarding this year
It’s always hard to attribute a market move to one particular news event, but today the odds are good that this morning’s plunge in stock prices is in reaction to China’s decision to impose tariffs on 128 U.S. products in response to the Trump administration’s new tariffs on imported steel and aluminum. The big target in China’s move is U.S. pork exports–the United States exported $1.1 billion in pork to China in 2017.
Today, the Federal Reserve raised its benchmark short term interest rate another 25 basis points to a range of 1.5% to 1.75%. And forecast a steeper path of hikes in 2019 and 2020. Fed policy member remained divided over the outlook for 2018 with seven Fed officials projecting at least four interest rate increases in 2018 and eight expecting three or fewer.
Turning around a portfolio can take a frustratingly long time. The Jubak’s Picks portfolio has had a performance problem since 2014. But I think I’ve finally put a recovery in place. The total return on the portfolio was 13.1% in 2017. That still badly lagged the 21.7% total return on the Standard & Poor’s 500. But it’s promising–considering that the portfolio finished the year 27.2% in cash. (Which itself was better than the 37% cash at the end of 2016.)
Today the White House announced that President Donald Trump has picked Larry Kudlow to replace Gary Cohn as director of the White House National Economic Council. Kudlow worked as an economic advisor to President Reagan where he was a dedicated believer in supply-side economic policies, and he is known as an advocate of expanding global trade. I believe Kudlow’s appointment to the job of the administration’s top economic adviser just about assures that the President will announce a big package of tariffs (and maybe other measures) aimed at China within the next week or two. Such a package would certainly increase the chances of a trade war between the United States and China.
U.S. retail sales fell for a third straight month in February–down 0.1%. The Commerce Department revised January sales higher than the initially reported 0.3% decline. But that still left January sales down 0.1%. That means that February marks a third consecutive decline in retail sales–the first time that’s happened since April 2012. Economists surveyed by Reuters had forecast retail sales had climbed 0.3% in February.
It’s only March but I’m rethinking my take on 2018.When the calendar pages turned over into 2018, my take on the year was that for stocks the first half would be much like 2017: Despite rising interest rates from the Federal Reserve, there was enough earnings growth to move stocks up even from near record highs. The bond market would be more problematic with those interest rate increases keeping downward pressure on bond prices and upward pressure on bond yields. With inflation still relatively quiescent, though, the downward trend in bond prices would be relatively gradual. It was the second half of the year that investors had to worry about, I thought then.
The door had barely closed on White House economic adviser Gary Cohn before the winning side in the White House trench warfare on trade began floating proposals to crack down on China. Peter Navarro, who has emerged, along with Commerce Secretary Wilbur Ross, as the point man for the Trump administration’s trade policy, has long been an advocate of an aggressive policy to limit Chinese exports to the United States and Chinese investments in the U.S. companies.
Meeting in Beijing today, the National People’s Congress approved plans laid out by President Xi Jinping and Premier Li Keqiang to set the target for economic growth at 6.5% for the next year and to reduce the government deficit to 2.6% of GDP from the 3% of the last two years.
In his testimony this morning before the Senate Finance committee new Federal Reserve chair Jerome Powell said, There’s “no evidence of the economy overheating.” Today’s economic data have raised doubts in the market about Powell’s conclusion.
On Thursday February 22, Goldman Sachs said in a note to clients that the economic macro data as likely to be “as good as it gets.” This isn’t, in my opinion, a call for an immediate plunge in the markets. But with U.S. stocks trading near all time highs, I think the Goldman note is something all investors need to take seriously. Or at least the question it raises needs to be taken seriously. Here’s the question: If stocks are at all time highs and the economic data on economic growth, inflation, interest rates, etc. are as good as they’re going to get for this cycle, why should stocks move higher?
