“With the breakout of the market yesterday, and given that ‘short-term buy signals’ are in place I began adding exposure back into portfolios. This is probably the most difficult ‘buy’ I can ever remember making.
As I stated, buying this breakout goes against virtually everything in my bones as the fundamental underpinnings certainly doesn’t support taking on equity risk here.
- We are moving into the seasonally weak time of year.
- Economic data continues to remain weak
- Earnings are only positive by not sucking as bad as estimates
- Volume is weak
- Longer-term technical underpinnings remain bearish.
- It is the summer of a Presidential election year which tends to be weak.
- The yield curve is flattening
- Bonds aren’t “buying” the rally
While I am increasing exposure here, I do suspect that price volatility has not been eliminated entirely which is why I remain cautious.
Furthermore, the “bullish case” is currently built primarily on “hope.”
- Hope the economy will improve in the second half of the year.
- Hope that earnings will improve in the second half of the year.
- Hope that oil prices will trade higher even as supply remains elevated.
- Hope the Fed will not raise interest rates this year.
- Hope that global Central Banks will “keep on keepin’ on.”
- Hope that the US Dollar doesn’t rise
- Hope that interest rates remain low.
- Hope that high-yield credit markets remain stable
I am sure I forgot a few things, but you get the point. With valuations expensive, markets overbought, volatility low, and sentiment pushing back into more extreme territory, there are a lot of things that can go wrong. “
In other words, it’s probably a trap.
I highly suspect that within the next week, or so, I will be stopped out of recent positions. That is the risk of managing money.
However, given the ongoing Central Bank interventions, verbal easing by the Federal Reserve and an excessiveness of “bullish hope,” it is likely that prices could indeed more higher in the short-term.
As John Maynard Keynes once famously quipped:
“The markets can remain irrational longer than you can remain solvent.”
This weekend’s reading is the usual series of opposing views to reduce the inherent confirmation bias that exists by remaining too bullish and bearish. An honest assessment of the risks and rewards will always lead to better long-term outcomes.
- Keynesian House Of Denial by David Stockman via ContraCorner
- The Specter Haunting Our Monetary System by James Rickards via The Telegraph
- Negative Rates Are Hazardous To Your Wealth by Chris Brightman via Research Affiliates
- Rumpelstiltskin At The Fed by Harley Bassman via Pimco
- The Wrong Kind Of Savings by Buttonwood via The Economist
THE MARKET – BULL vs BEAR
- One Measure Says S&P Overvalued By 72% by Alex Rosenberg via CNBC
- 7 Investment Lessons From Peter Thiel by Jae Jun via ValueWalk
- The Financial Threats Machines Can See by Mark Buchanan via Bloomberg
- FOMO Is Driving The Market by Anora Mahmudova via MarketWatch
- Is The Profits Recession About To End by Bob Pisani via CNBC
- Stop Acting Like Sheep by Mark Melin via ValueWalk
- Rally Looks Like A Classic Investor Trap by Med Jones via MarketWatch
- Bond Love Up, Supply Down by David Keohane via FT Alphaville
- Leading Indicator Hists At Bear Market by Rob Isbitts via MarketWatch
- Investors Game A Broken Market by Doug Kass via Real Clear Markets
- DJIA’s Golden Cross Might Be It by Tomi Kilgore via MarketWatch
- Some Context For Shiller’s P/E by Larry Swedroe via ETF.com
- Charts Say More Upside By Markets by Michael Kahn via Barron’s
- 5 Reasons Stocks Are Back To Highs by Howard Gold via MarketWatch
- Little Sign Bull Run Will Stop Soon by Lawrence McMillan via MarketWatch
- Why Is The Market So Strong? by Pater Tenebrarum via ActingMan
- Beware Of Bull Trap As Breadth Breaks Down by Tyler Durden via ZeroHedge
ECONOMY & OIL
- Saudi’s Don’t Like $40/bbl Oil by Panos Mourdoukoutas via Forbes
- If Saudi’s Open The Spigots, Watch Out by David Fickling via Gadfly
- Is $80/bbl The New Normal For Oil by Matthew Belvedere via CNBC
- Atlas Shrugged, Economy Feels The Weight by Jeffrey Bartash via MarketWatch
- A Financial Hockey Stick by James Hamilton via Econobrowser
- Economic Data Weakens, Supports Thesis by Joe Calhoun via Alhambra Partners
- Secret Shame Of Middle Class Americans by Neal Gabler via The Atlantic
- Oil Is About To Drop 30% Again by Brett Owens via Forbes
- Resisting The Siren Song Of Factor Timing by Cliff Asness via AQR
- 50% Return Coming In Commodities? by Meb Faber via Faber Research
- Earnings Headwind Bandwagon by Jason Zweig via MoneyBeat
- History Suggests 40-55% Correction by John Hussman via Hussman Funds
- 2015 Caused An Earnings Rift by Jeffrey Snider via Alhambra Partners
- Debt Pile IS The Elephant In The Room by Carmen Reinhart via Project Syndicate
- No Reasonable Explanation by Tyler Durden via Zero Hedge
- Global Equities Stake Key Technical Ground by Dana Lyons via Tumblr
- More Signs Of Reversal In Wealth Effect by Jesse Felder via The Felder Report
“Risk taking is necessary for large success, but it also necessary for failure.” – Nasim Taleb
Questions, comments, suggestions – please email me.
Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In