Stocks Outlook - Friday, July 6

Thoughts

  1. Corporate debt continues to surge. NOT a medium-long term bearish factor for the stock market
  2. Dennis Gartman said that “we are in the beginning of a bear market”. This guy is one of the best contrarian indicators out there.
  3. Trump’s trade war is a short-term bearish factor for the stock market, but not medium-long term bearish
  4. Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
  5. Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

1 am: Corporate debt continues to surge. NOT a medium-long term bearish factor for the stock market

Corporate debt levels continue to trend higher, leaving the permabears “enraged”. Permabears believe that “debt is evil, so debt shouldn’t trend higher” in the long term.

Real (inflation-adjusted) debt is also trending higher.

 

In reality, corporate debt is unlikely to cause the next economic recession and equities bear market.

  1. Corporate debt ALWAYS trends higher in the long term.
  2. Corporations have no problem servicing this debt because their cash flows and liquid assets continue to rise in sync with debt levels. In fact, cash flows and liquid assets as a percent of corporate debt are near multi-decade lows, which means that corporations can easily service their rising debt.

 

1 am: Trump’s trade war is a short-term bearish factor for the stock market, but not medium-long term bearish

Trump’s tariffs on $34 billion in Chinese exports went into effect today, and China is expected to retaliate. In other words, this is another step in the ongoing trade dispute between the U.S. and China.

So far, trade war-related news has been a short-term bearish factor for the stock market. The stock market went down 3 days later in 32% of historical cases. However, this was not a medium-term bearish factor for the stock market, which went up 70% of the time 3 weeks later.

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