Market Wrap & What To Watch This Week; Modi Win Is Bullish For India
This teflon stock market could finally be tested this week, with a slew of financial, and, non-financial events occurring. For the first time this year, I have a hefty cash position; and, stop market targets on those stocks that I do own. If I buy tomorrow, which I may well do, I will continue to have market stops, or trailing stops on all equity positions. Geo-politically, the tension on the Korean Peninsula is palpable, as North Korean dictator, whom I call “Dr. Evil,” continues to thumb his nose at both the West, and Beijing, as reports are that Pyongyang test fired yet another ballistic missile this weekend. And this week, we get at least two known — big political events — as POTUS Trump’s nominee for the Supreme Court begins his time in purgatory on the Hill beginning tomorrow (Mon.) morning; and, the vote to repeal/replace Obamacare is anticipated to occur in the wee hours of the morning on Thursday night/Friday morning. The Korean Peninsula tension is pretty thick right now; and, comes amidst political change/transition in Seoul, as former South Korean President Park Geun Hey was impeached, and became the first president in South Korea’s history to be removed by Seoul’s highest court. This uncertain Soutj Korean political situation, coupled with Kim Jung-Un’s aggressive pursuit of a long-range, nuclear capable ballistic missile program has resulted in high tensions throughout the region; and, ripe for miscalculation and over-reaction.
The hearings on the Hill this week,on POTUS Trump’s nominee to replace Justice Scalia on the Supreme Court; and, the anticipated vote on repeal/replace Obamacare late in the week, will be the first substantial tests of POTUS Trump’s power and stature among Republicans on the Hill. Yes, there has been a defeat in the federal courts of the administration’s order to do extreme vetting of individuals coming to America from countries that we do not believe do a good enough job of vetting beforehand; but, that issue is not settled yet; and, it is hard to see how the administration’s position doesn’t eventually prevail in the end. Make no mistake, the Supreme Court nominee hearings this week; and, the vote on repeal/replace Obamacare will be a major test of a brand new POTUS’s political capital. A setback or defeat on both — which is not expected — would put in jeopardy the entire Trump agenda and would likely result in a major selloff of stocks on Wall Street. My guess is that POTUS Trump prevails on both issues; but, they will be closely watched and could inspire some volatility on Wall Street.
Outside of these events, if earnings are good, there is still a lot left in this rally in my opinion. The market does not go in a straight line — up, or down — so, we’re overdue for some kind of pullback. If it is prompted by a geo-political event such as on the Korean Peninsula, or a major political setback for POTUS Trump, then the selloff is likely to be healthy. If it is occurring in the absence of anything substantial, then, the smart money will be using any such ‘correction’ as a buying opportunity. Either way, I am getting more defensive, because we have been on such a tear since the November election. Thus, I will be buying protection on any new positions, as I already have stop market, or trailing stops on all equity positions.
Last week was a pretty flat week for U.S. equities, as the DOW eked out an 11.64 point gain, or +0.1 percent, to 20,914.62 points; while the S&P 500 ended the week up +0.2 percent, to 2,378 points and, “its seventh weekly gain in the past eight weeks,” wrote Ben Levisohn in this weekend’s Barron’s. The tech-heavy NASDAQ closed up +0.7 percent, to 5,901 points. For the year, the DOW is +5.83 percent; while the S&P 500 is +6.23 percent; and, the NASDAQ is +9.62 percent. My personal portfolio is +20 percent ytd.
U.S. & World Equities Performance Since The November Presidential Election
Germany (DAX) +15%
European ETF +13%
Emerging Markets (EM) +5%
As far as sectors go, technology — including the FANGs (FaceBook, Amazon, Netflix, and Google/Alphabet) as well as the bio-pharma sectors have been on fire. Facebook (FB) and Apple (APPL) are both +21%, while Alphabet (GOOGL) is +19%,, Netflix (NFLX) is +16%, and Amazon is bringing up the rear at +13%. FYI, with respect to Netflix, there is some speculative bets on NFLX, that it will be taken out/bought by Disney before year’s end. That might be a good bet; and, if I can free up enough cash in the portfolio, I may buy 500/1K shares, which would not be a small position for me.
Modi Win Bullish For India
If you are a little nervous that U.S. equities could cool off here in the short-term, you may want to consider an ETF that gets you exposure to india’s stocjk market. Shuki Ren had an article in this weekend’s Barron’s with the title above. Ms. Ren writes that “India [stock market] is breaking out, after Indian Prime Minister Narendra Modi’s Bharatiya Janta Party (BJP) scored a surprise majority win in the key battleground state of Uttar Pradesh, propelling the Indian Rupee to a 16 month high; and the benchmark, NSE Nifty 50 index to a record, even as the U.S. Federal Reserve raised rates.”
“Indian stocks can march higher,” is Ms. Ren’s bottom line. “Pradesh is the most populace state in India, accounting for 15 percent of Indian voters, and seats in the Parliament. After this win, Modi’s BJP will govern states accounting for over 50 percent of India’s population and almost 60 percent of the country’s Gross Domestic Product (GDP).” Despite this impressive showing, Prime Minister Modi will still need to do some horsetrading to get what he wants, Ms, Ren acknowledges. But, “this victory does bode well for Modi’s chances of being re-elected in 2019, which means he could govern India till 2024. This kind of political stability is rare in this world of populists; and, suggests that Indian stocks political risk premium should decline,” says Macquarie Research’s Inderjeetsingh Bhartia. “A lower risk premium means higher valuations,” Ms, Ren writes. “Currently the MSCI India Index trades at over 17 times forward earnings, a good 15 percent above its long-term average of 15 times.”
I refer you to Ms. Ren’s Barron’s article for further granularity. The investment firm, CLSA recommends financials such as ICICI Bank (Ticker: 532174.India) and IndusInd Bank (532187.india), and materials stocks such as Vedanta (500295.India). If you are looking for an Indian ETF, you can go to Google, or Yahoo finance and type in Indian ETF. There are several good ones to choose from, such as PowerShares India Portfolio ETF (ticker symbol: PIN), iShares MSCI India ETF (INDA).
I wanted to add a paragraph on a Barron’s article on 5 water stocks to consider; but, it is late for me and this article is already long enough. I will do my best to get the water article out tomorrow — Monday. That’s all for today. Make sure you do your own due diligence, research, and homework before investing in any of these stocks/funds. And, remember, the only two sure things is death and taxes. V/R, RCP