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BCN Advantage - 2017 Annual ReportFebruary 22, 2018
Jeff Bratzler, CFPBCN Financial
For 2017, the S&P 500 rallied 19.4% to 2,674, the Nasdaq 28.2% to 6,903, and the Dow 25.1% to 24,719. It's been a nine-peat: nine straight years of market gains. The U.S. stock market has returned a compound 15.5% per year over that span, growing cumulatively more than 250%. January saw the best start since 2006. In four weeks the S&P 500 gained 7.5%, the Dow 7.7% and the Nasdaq 8.7%. Then came February. The Dow lost more than 1,000 points twice in one week, leaving the markets in a correction, down 10% from their January 26th record highs. While the headlines focused on the largest point drop ever for a single day, in percentage terms the Dow’s 4.6% fall was the worst since August 2011, but only the 25th largest since 1960. For perspective, the Dow plunged 22.6% on the Black Monday crash of October 19, 1987. GAAP estimates for 2018 are a whopping $145 per share, a 32% increase. Such spectacular results would go a long way to bringing stock prices in line, but a healthy dose of skepticism is warranted. Despite the recent 10% correction, the S&P 500 is still trading at 25 times trailing 12-month GAAP earnings. That’s expensive by any measure. Price discovery is lacking, replaced in the bond markets by price insensitive central banks, and in the stock market by price insensitive corporate share buybacks and passive ETF buyers. The yield on the benchmark U.S. Treasury 10-year note is 2.83%, more than double the multiyear low of 1.37% set in July 2016. Up to a certain point, rising yields are seen as the barometer of a robust recovery. But if yields rise too far, too fast, it sets up a policy conundrum. The current fed funds range is 1.25% - 1.50%, with three quarter-point hikes priced in by December. But consider the changing landscape: In the U.S., the administration has just passed a deficit-funded tax cut and budget-busting spending bill, piling fiscal stimulus atop an overheating economy at a time when the Fed is trying to hike. Past a certain point, inflation would force central banks to end their reflexive relationship with markets. No more “Fed Put.” They would need to lean against inflation irrespective of what that would entail for risk assets. 25x earnings may not seem unreasonable so long as the Fed has your back. But absent faith in continued Fed accommodation and intervention, stratospheric valuations no longer look appetizing. For the first time ever, both the Fed and Treasury will be dumping massive amounts of public debt on the bond market – $1.8 trillion in FY 2019 alone. The double whammy of government debt coupled with Fed “quantitative tightening” could spark a “yield shock” – even in the absence of inflation. As we learned during the EU debt crisis of 2010, bond investors are enticed by high yields only so long as rates are seen as stable or poised to go lower. But what if perception shifts? And bond investors become fearful that rates will not only rise, but rise rapidly. Demand even for sovereign debt can disappear overnight, creating a vicious cycle. This is what we saw in Europe before the banks stepped in. Repatriation of overseas cash by U.S. multinationals could bring $2 trillion back to the U.S, much of it used to buy back company stock. Corporate repurchases totaled $570 billion in 2017, and are expected to reach $590 billion in 2018. Stocks should rally, lifted by those share buybacks and strong earnings. But we fully expect the lows set by this current pullback to be retested, probably no later than October as the Fed and other central banks accelerate their quantitative tightening. 10-year yields rising above 3% may set the stage for sharp declines. And the “Fed Put” may not be available the next time markets take a sustained tumble. This current market selloff could be the beginning of a more serious correction, but it's too early to tell. If the ensuing rally fails before making a new market high, subsequent declines will become increasingly more dangerous. We are already positioned for a decline as severe as -25%. But we definitely do not want to commit further to growth stocks until the pattern of this current selloff becomes clear. For us, deep corrections become buying opportunities, because we have the financial ammunition (defensive cash) to buy aggressively once the markets bottom.
Bear Tracks – FANG Index and HousingNovember 14, 2018
Source Address    InvesTech
The FANG Index, which represents 7.9% of S&P market capitalization, peaked on July 25, 2018 and has already tumbled 20% – hitting bear market territory on October 29. In the rally since the start of the year, these FANG stocks (Facebook, Amazon, Netflix and Google) contributed to over one-half of the ...
50 Best vs 50 WorstNovember 12, 2018
James StackSource Address    InvesTech
What makes the BCN Advantage service so different is that we determine allocations based on current market conditions rather than age or years to retirement. Like any other investment or purchase, some moments are much better than others to buy stocks or be fully invested in the markets. For 2+ decades, ...
Analysts Warn of Peak EarningsOctober 26, 2018
Brian SozziSource Address    Yahoo - Finance
Igniting a flame under earnings the past two years has been the tinder of low interest rates, tame inflation and a steady jobs market recovery. That caused investors to rotate into riskier pockets of the equities market. But that gasoline has just about burned out. And with it, probably comes a period ...
New Fed Fear No Powell Put October 25, 2018
Jed GrahamSource Address    Investors Business Daily
Since the aftermath of the Lehman Brothers collapse a decade ago, Wall Street has always been able to rest assured that the Fed had its back. A rising risk of a bear market in stocks would activate the Bernanke put or the Yellen put, provoking a prompt Fed policy shift to rally the bulls. The sudden ...