AAII Sentiment Survey: Hurts So Good…

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In April 1982, John Cougar Mellencamp released a song entitled, “Hurts So Good”.  I was never a huge fan of the song, but in thinking about what to write today, his lyrics came to me:

“Come on and make it a

Hurt so good
Come on baby make it hurt so good
Sometimes love don’t feel like it should
You make it, hurt so good”

John Cougar: Hurt So Good

Last week we said, we agreed with Kenny Rogers’ “you got to know when to hold ’em” and that while we were in the midst of a “pause that refreshes” we would hold what we had and potentially look to add only in those sectors that had lagged – with emphasis on possibilities in the Biotech sector (among others).

Biotech EPS UP 8.58%, Price DOWN 9.52% (in last 2 months)

We followed our own advice and added a bit in the last few days in biotech, and held what we had – but one ISM report later, we learned to love Mr. Mellencamp’s lyrics.  This week was a perfect example of “sometimes love don’t feel like it should – you make it, hurt so good.”

With the correct backdrop in place, we see no reason to run for the hills – but rather accept the short term volatility in exchange for the intermediate term benefit, and “Lord knows there are things we can do, baby.” Here’s the backdrop for the “things we can do, baby”

1. Data is getting better, not worse (exception is global manufacturing):

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2. Fed has stopped Quantitative Tightening, reduced the discount rate by 50bps, and will likely cut a final 25bps this year.  Just as it took 6 months to feel the effect of two years of tightening, it will take a few months lag to see the benefits of additional liquidity.  It is reasonable to expect multiple expansion moving forward as 2020 estimates are strong and the lowered cost of capital increases the value of the future earnings stream.

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David Reynolds 1 year ago Member's comment

Who would have thought Mellencamp and the economy had so much in common!