Drilling down into variables one can readily see the market challenges, which go way beyond simplicity expectations of a late year rally. That’s not at all out of the question but how we get there varies upon the two most obvious issues that remain unresolved.
They are midterm elections Tuesday, the implications and of course trading with China.
The chart behavior we’ve shown gave a good picture of how uncertainty has or will roil this market. And how it can defy orthodox seasonal expectations. I am not talking about Apple (AAPL). It’s a trigger for generalized worries about growth in a slower nature, not just for the Cupertino darling, but for tech in-general.
Sure, it alone can move markets because at 5% of S&P (SPX) total capitalization it has outsized impact. Nor do I refer solely to in-place buyback programs, that can turn slow-growth into yet-higher earnings growth. (Again, artificial ways of window-dressing a stock’s results while at the same time enhancing executive compensation via keep share prices at a higher level than they might otherwise command.)
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I’m addressing variables that a slower-growth environment can have on valuations. And whether or not 2018’s persistent internal corrections (rolling bear market, rinse & repeat style) I outlined from the initial crash alert in late January before the February break, in a broad way are sufficient.
I think maybe, for many smaller-cap stocks, and a slew of major industrial companies that soared on Trump’s win. then gave a lot (or more) back this year. The excessive optimism unwound long after optimum entry points back in November 2016, as we enthusiastically called for.
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The point of this is that oscillating pattern was masked by a concentrated as well as suspicious movement (stealth distribution) in FAANG and momentum stocks (a relatively small handful of issues), led by Apple’s domination and a ridiculous price extension on stocks like Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOG).
As the stealth distribution took place, we pointed-out how insider selling really was at historic levels. (They used the share-repurchase buybacks to levitate a slew of stocks even when earnings really weren’t otherwise assisted by a company’s sales, with buybacks and tax-related boosts masking revenue.)
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In sum: All of this means part of the distribution anticipated the bear market of 2018 for about nine months now, as a bifurcated nature of FAANG leadership suggests many stocks have more room to adjust.
And that can be the macro issue, regardless of any potential year-end rise, presumably related to getting past midterms and making a China trade deal that also won’t immediately trigger better earnings. though would be a relief.
More on Apple:
Jon Markman: Why investors need to know about Apple's self-serving privacy strategy.
Jon Markman: How Disney, Apple threaten to cut cable cords. Buy DIS on weakness.
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