People love the hot “stock” tip. Well my usual answer when people ask me about the stock market is “I have no idea”. This is infuriating to most people, but also true. I do have some thoughts, but still not sure they are actionable intel. I do, however, like the idea of being judged in public and having a complete record of what I was thinking at the time and why. This seems as good of a place as any to do that. Proceed at your own risk.
1. The trade war with China will end sooner than most think. Although it would appear that China doesn’t have to rush into any agreement, the tariffs and protectionism of the US consumer are hurting the Chinese economy. More importantly, President Trump views the stock market as his report card (poor choice on his part), so saving face, getting a win with some type of agreement, quickly, will gain him favor moving into 2020 (which is ANOTHER election year, can you believe it?).
2. I’m going to double down on my (bad) call from last year regarding emerging markets. Brazil is my favorite, and I do believe that without the trade war in China, the emerging world may have been on par with the US. If you’re trading at home (I wish you wouldn’t, but I understand), EWZ is the Brazilian stock market ETF ticker symbol.
3. Long Semiconductors – For those of you following the chipmakers over the years, you will know that this is a cyclical business. The semiconductor sector (SMH) was down almost 30% from high to low. In my opinion it’s a little overdone, although there is certainly room for this one to fall a bit more before it decides to bounce. Favorite names here would be SMH itself (the index), and for you more adventurous souls, AMD.
4. Long Energy and Commodities (Specifically WTI Crude Oil) – In my opinion, oil could go from $45 to $60 (33% gain). This is simply another mean reversion call, as I believe the washout in oil has priced in a massive world demand slowdown. While I do believe that earnings estimates will be tempered moving forward, oil is pricing in a recession (or worse), and until we print negative GDP numbers that will continue to be speculation. Best way to play here is XLE, XOM, or USO. As reminder for those income-focused investors out there, XOM pays a 4.7% dividend yield at this price. Not too bad…
5. Short US Dollar. This could happen with the Federal Reserve backing off their relatively inflexible tone about raising interest rates, or anywhere else in the world getting their act together (best chance is the UK). We’re already slightly overweight a negative US dollar position in our portfolios, so no need to overweight even more on your own.
Be Careful Out There!
– Adam