- Choppy.
That’s the best way to describe the market right now.
Stocks are getting yanked around right now as they release their full-year results and FY24 outlooks. It’s not a disaster but most are not firing on all cylinders, either.
This puts the passive investor in a bind currently. The market is flat for the year. And it’s hard to see the index lifting substantially, at least, for now.
Here’s the catch. Your lifestyle costs keep going up. And it’s been this way for a while.
Personally, I think you have to be active — but selective — in today’s market.
What I mean is you need to be hunting for the stocks that can outmuscle the lacklustre environment, but you need a sniper’s rifle, not a machine gun aimed at the target.
We have one advantage. In a room full of chickens, the peacock is always going to stand out.
Any stocks breaking upwards at this moment simply must have strong drivers in some way to push them against the lethargy of the economy and the market vibe.
My suggestion? Keep a very close eye on stocks making 52-week highs, or at least not selling down against the market.
For the patient, there is a mountain of value out there. The question is what can get these stocks moving.
We can only watch day by day on this one.
The general narrative is bearish.
As usual, China is the scapegoat. I don’t buy that because it doesn’t make sense for iron ore to be US$110 and oil US$80 a barrel if that was the case.
I also saw this snippet from Gavekal Research:
‘A range of data points seems to indicate that Chinese consumption is holding up well. This might help to explain why the share prices of LVMH, Hermès, Ferrari and most other producers of luxury goods are up on the year.
‘If China really was facing an economic crash, wouldn’t you expect the share prices of luxury good manufacturers to at least reflect some degree of concern?…
‘Having gone through a fair number of emerging market crises, I can say with my hand on my heart that I have never before seen the government bonds of an emerging market in crisis outperform US treasuries. Yet since the start of Covid, long-dated Chinese government bonds have outperformed long-dated US treasuries by 35.3%.’
Opportunity can spring from this. The iron ore, gold, and oil sectors all have great cash flows from the high prices currently.
Sentiment has been against the stocks.
They could spring back if China continues to show no signs of stress. That’s the way I’m playing the current dynamic. Go here for two ideas on that.
- So if China isn’t the problem, what IS the problem?
It’s the US bond market! Long-term yields are lifting.
That’s driving up, for one, ancillary rates like US mortgages, which is, in turn, slowing down their housing market.
It’s more than that. US Treasuries are supposed to be the global ‘safe’ asset. Yet anyone holding these is currently being slaughtered.
And the US Government can’t allow things to get out of hand here…it has an acute financing need because of its gargantuan debt and deficit.
Problems in this market flow back to other assets like shares.
For you and I, there’s nothing to do but see what Fed Chair Powell guides to the market at his current shindig at Jackson Hole.
- I do a lot of CrossFit. I’m ordinary at it. But the main coach at my gym is built like Schwarzenegger and competed in international competitions. He says one of the secrets to being successful as an athlete is to ‘move toward pain’.
I’d say the same is true of investor. When things look ugly and difficult, you at least get a look at potential value and big upside. That’s where you can build the financial ‘muscle’ of your account in years to come.
It seems obvious to me after all these years that this is when you should be most active. I’m not saying it’s easy. I can’t promise you that. But a CrossFit body isn’t built in one year. Neither is a big retirement account.
The best time to start was a long time ago. The next time is now.
Best wishes,
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Callum Newman,
Editor, Money Morning
