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.
Remember just two weeks ago when all the talk was about the end of the cycle? How this was as good as things were going to get? About how profit margins had peaked? Today? Well, we’re knocking at the doors of those highs again.
With the Federal Reserve and Apple’s earnings behind us, this week the market has responded by strongly bidding up the prices of Nvidia and SolarEdge Technologies–and their options–strongly ahead of earnings announcements on May 9 and on May 10. I added call options on these stocks to my Volatility Portfolio on April 17 as the first move in my strategy for profiting from the 2018 earnings boom. My gains: 49% and 70%
In the period from January through March, the U.S. Treasury borrowed $488 billion. That’s a record for the quarter and $47 billion more than the Treasury had earlier estimated. The Treasury finished March with a cash balance of $290 billion, up from an initial estimate of $210 billion.
This morning provided a great example of how confusing and complicated correlations among asset classes are in the current market.Stocks rallied with the Standard & Poor’s 500 up 1.15% as of 11 a.m. New York time and the Dow Industrial Average ahead 1.7%. In some markets that would have been an all-clear signal after last week’s chaos and sent a message that buying risk assets was okay again.
When I last rebalanced my Perfect 5 Active Passive ETF Portfolio on January 16, I said that I’d rebalance it again on July 1–unless events intervened to force an unscheduled rebalancing. Well, events have indeed intervened. The S&P 500 index closed within a handful of points of the February 8 low today, March 23. If the index and the U.S. stock markets were only going to drop another few points and then hold (or even bounce on that low), I wouldn’t feel the need to rebalance. But there’s a good chance the market will fail its test of the February 8 low.
You might have missed it in the hoopla over President Donald Trump’s signing an order to apply higher tariffs to $50 billion in Chinese goods and the “associated” 724 point drop in the Dow Jones Industrial Average. But the House of Representatives passed a $1.3 tillion spending bill that keeps the government funded past tomorrow’s deadline and through the end of the fiscal year in September.
This isn’t going to sound very technical or sophisticated but to me the day feels like one where lots of traders and investors decided that they just couldn’t see any near term upside and in the absence of that upside they decided to sell. This pessimism strikes me as a delayed reaction to yesterday’s Fed meeting and a new dot plot that showed increased sentiment at the Federal Reserve for at least two more and possibly three more interest rate increases in 2018–and more rate increases to come in 2019 and 2020. In this context the President’s China tariff proposal isn’t the killer but rather just one more negative element.
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.
Today, Monday March 12, the Industrial Select Sector SPDR ETF (XLI) fell 1.24%, declining more than either the Standard & Poor’s 500 (down 0.13%) or the Dow Jones Industrial Average (down 0.62%.) I think this is an indication that fears that the Trump administration will still manage to set off a round of trade retaliation to its higher tariffs on steel and aluminum are still with us. Â
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.
Yesterday, U.S. stocks moved higher in the morning and then continued upward until traders and investors had a chance to think twice about the minutes from the Federal Reserve’s January 30-31 meeting.
