E Market Briefing For Jan. 6, 2020

Ushering-out an incredible 'fire & ice' decade - and entering a new era; while it shouldn't be defined by a calendar change, this time has a correlation to economic, political, social, geopolitical and even market patterns. The majority of dynamics had their seeds planted in 2019.  

Roaring 20's or not (we'd prefer calm growth considering how the last of the 'roaring' 20's ended), this is the beginning of a projected time-frame that follows a 'transition year', which absolutely dovetails with 'change'. I do not mean small change (though the Greenbacks buying power has given the impression of being improved by cheap imports, while reality has reduced it's strength especially in healthcare and housing costs); in this case I mean transitions in many areas. We've touched on a few.

Housing is still unaffordable at the entry-level for most; and established homeowners are resisting moving; unless they are in heavily taxed and or deteriorating places like New York/ New Jersey, Northern California or so on. The trend is towards high-end properties continuing decline in the high-tax states, while States with low or no personal income taxes (and realistic property taxes) grow (Florida, Texas, Nevada, or so on).  

If there's a risk of a real-estate flat-out crash, which would impact stock markets over time, it's probably China foremost; because even though (just this week) China is mandating more friendly lending policies in an effort to sustain growth (or limit decline), their entrenched 'command economic' style has not alleviated the 'ghost city' conundrum (a way to artificially create growth even when there's no demand for product).

At the same time wealthy Chinese continue struggling to get money out such as to Canada (especially Vancouver and Toronto); pushing prices up, necessitating a tax to dissuade that, and creating tensions among property owners, of course liking higher prices, but realizing where that can lead. (Just look at the mess that is the San Francisco Bay Area to see how high prices can devastate a proclaiming compassion or sense of 'community' among diverse populations that, on the surface, proclaim that's what they want to see develop.)  

Bottom-line: the trade deal with China 'may' be signed as soon as this coming weekend. Fluid stories as to whether it's happening and who is going to be present. (Editor: now we hear it's January 15th.)

The idea of a 'brick wall of resistance has some merit in this structure, at least for the S&P; and is what I've discussed for awhile resulting from holders nailing gains in the big-cap leaders in the new tax year; while a broad assortment of laggards 'might' even advance concurrently.  

Ineresting hints about early 2020 - are starting to appear; as nominal selling of hugely profitable stocks has not and/or will not 'really' crimp a surging market significantly. As stocks now settle in the 'new tax year', it is interesting to see how many big managers hold-onto their positions.  

I think this may be slightly illusive (or premature) to emphasize as of yet because while gains (or losses) can be taken in the new year (sales for 'cash settlement' can be made up until Tuesday's end), lost of manager attitudes relate to 'mark to the market' pricing; and if they're measuring comparative performance (or representation), they may want to show a heavy presence right into New Year's. (Many investors will look at what they own, but not necessarily 'when or at what price' they bought into.)

So you're getting some breakouts and short-covering combined with all this end-of-year crosscurrent activity; and this all happening just a week before we get into Press previews of CES that I'll be reviewing (though as I went to Berlin's IFA it's unnecessary to travel to Vegas again, and I do get the media info; most of which are products we've already seen). I think some things like GM's 'Bolt' without pedals or a steering wheel, of course will get attention; although I view that vehicle as controversial at least. 5G will be all over everything; but that's what we've anticipated would start rolling-out about now; and increasingly into 2021 as well.  

Yes there are laggards that can do better next year; and others that are known but undervalued relative to their potential; and plenty overvalued stocks; or ones that are upgraded by analysts because of prominence, or capitalization, as impacts an Index or Average (Apple is the king of course of all of those). Stocks like Intel do not fully reflect the role they will likely emphasize in AI and AR, and it's true for Texas Instruments too. Financials may be suppressed, but not terribly exciting;as some Oil stocks at this point may offer a better combined return prospect.

Then there are situations like Amarin; fairly unique, a bit speculative of course, but even after moving up, retain significant potential (including takeout or buyout or partnership prospects, as well as simply growing). And existing favorites that doubled or tripled like AMD might just work higher, at least for now (but bargain day is behind for that). It's harder to find value especially as institutions levitate many stocks beyond what's really fair or reasonable valuations. That's especially so for FANG type momentum stocks. They can forge ahead for now; but remember what is called a 'Bigger Fool Theory'. Someone will be at the end of the line; as institutions, not so much individuals, press into big-cap players long after everyone knows the stocks, and the big money, has been made.  

Of course everyone from Facebook to Google to Amazon fit the mode although some more so than others (Amazon depends primarily now on AWS... their Cloud and internet-support services; and that's where they might actually encounter more competition from Microsoft's Azure). Of course a break in the (often overpriced) big-cap stocks will impact what is called the lagging broader market; but even as prospects would be a pullback within-context of the primary uptrend; it could get interesting.  

Then there are the higher dividend stocks that remain represented, until credit market competition appears closer (eventually). And AT&T is still attractive overall; and won't be impacted by the ultimate over-air ATSC 3.0 'revolution' I alluded too, which really benefits the extreme low-end of viewers/consumers, and will actually compel Comcast and others to 'up their game' with respect to quality carriage of signals (that's once it becomes evident that networks will broadcast in 4k and most big cable companies aren't yet carrying / distributing / supporting 4k or the Dolby Atmos soundtracks that most newer movies carry).  

A year ago when I'd selected AT&T around 28-31; most market pundits dismissed my idea, with their arguing about debt-service and urging the purchase of Verizon instead. Well AT&T robustly outperformed, and I'm not opposed to Verizon (about a 4% yield); while AT&T is actually hiking their own dividend a couple cents (to prove the point that it's solid); so it's still a 5% or so return. Total return for the year was over 40%, and I think it's still a solid hold (and yes many pundits 'now' like it). 

In-sum: while we see some perpetuated gains in healthcare, perhaps a bit more in semiconductors; or specialty situations; we increasingly will have an eye aimed at the credit markets and particularly the monetary policy 'reviews' and where that might lead for the EDB and our Fed.  

Oil prices might rise and initially help mask a future distribution in other more-overvalued areas. The Fed does 'want' to see inflation (ironic they want it with lower rates... ultimately an impossible combination in 'real' serious growth, which is not broadly what we have so far); and there's the rub. In Europe they understand that higher rates would suggest the better times ahead (that's why Germans saved not spent more when it was curious interest rates fell so much); where in the U.S., 'consumers' (many think like consumers not responsible citizens) thrive on low rates and would probably curtail spending on signs of actual prosperity on a broader front. However, this is all something to assess as 2020 unfolds.  

Speaking of assessing; as much as I'd prefer avoiding politics, there is likely no alternative to addressing it. In 2016, while Fed-related jitters were ongoing, I proclaimed that 'if Trump wins' it's to the moon. Well it was and you know how we assessed the 2018 rotation and cycle low of one year ago. That's all fine; but now what happens if Elizabeth Warren can't be nominated (today complaining about being low on funds); and if Bernie was actually the Democrat candidate?  

Nothing could be more diametrically opposed to current Administration philosophies. While Sanders may have some 'seemingly good ideas'; they're not perceived as fiscally sound at all, even if some are doable. It also reminds us that most Americans that actually work for a living will think twice (or three times) before voting for higher taxes which he has repeatedly failed to back-away from. Even if they might do better overall (adjusted for health costs) the bulk of middle-age voters may not focus on that.. again just one of the variables to contemplate next year.  

(Even though the current policy approach isn't doing so great either for infrastructure; and some of the Republican states cancelled insufficient Obama-era funding for a slew of useful projects like high(er) speed rail and intercity rail and thus money got shuffled elsewhere and so much remains uncompleted. It's appealing to some people only to focus on a domestic agenda; but a problem is growth relates mostly to innovation and development; which it's surprising some don't appreciate how it all came from computers, the space program, and so on.. and ideally will continue to do so; but not if we take a totally hunkered-down approach and I'm not referring just to trade or only focusing on social issues.)

(I actually caught a typo: I typed 'trendiness' and meant 'trend-lines'.)

Bottom-line: change is inevitable; but a new 'social' course isn't always well-received by the stock market; and could be more dangerous than a Fed hike; depending how things unfold. And again that is NOT to say it is necessarily bad 'for people'; but for the market's 'perception' at least as it might be initially. Pretty clearly the market would prefer a friendly Fed and consistency in policies; although 'even with' the present set-up I suspect they'll encounter problems down-the-line (starting with a shift in ECB policy perhaps; though even there officials are nervous and for sure the Fed recalls the reaction to their hike last year).  

Conclusion: the liquidity-induced Fed-facilitated market continues; with a multiple expansion that's unlikely to be matched in 2020. That's not to say we won't go up; or that others won't catch-up (rotation); but it's not going to be a time to be complacently relaxed-at the switch, especially later in the year.  

Conclusion is similar: there's no catalyst to warrant committing new funds as yet; although I expected 'recent' extensions, and leaned very clearly towards a China Deal coming; with initially higher S&P records. If anything I've been conservatively optimistic thru 2019 and reiterated the old sayings: 'don't fight the tape', and 'don't fight the Fed'.  

It's all on-top of capturing the entire gain on the number 1 stock: AMD; and presumed additional gains ahead (over time) for Amarin. And this year the rocky start (fling sort of an S&P flail) followed immediately by a controversial undertaking in the Persian Gulf, has various aspects or outcomes that we'll try our best to follow as impacts markets. 

We remain circumspect while market stresses were notably alleviated by making a 'Phase One' deal with China (superficial or not); while of course near-term Middle East chaos throws a wrench into behavior of the market and more uncertainties to contend with ahead.   

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