Most of my trading and investment banking colleagues laughed or at least didn’t take me seriously when I made a 2400 S&P call in equity markets back in 2013. Then, I called for 3000 a year later. At this point, my colleagues displayed open skepticism. Then the markets fell in August 2015 and Feb 2016 and I wondered if I was wrong.
Well, I was wrong, for some time. And thereafter not so wrong.
Cut to July 2019. Things are less clear today than before. As the world’s most hated equity market rally extends its duration past 10 years, the mantra is to Be Flexible. You may be an economic fundamentals person worried about global recession predicted by 10 year UST yields having fallen from 3.20% in November 2018 to 2% in June 2019! You may be a businessman watching medium-term trends with an eye to rebalancing your portfolio. You may be a home-maker watching publicly recorded information on what the so-called “Smart Money” is up to.
Regardless of who you are, please bring to the table your knowledge and feel for global capital flows and an understanding of the factors driving current market sentiment. And constantly ask yourself – Is this time, really different?
Cutting to the chase, from my perspective:
- I would stay long the US equity market but leave dry powder to buy stocks on a material market correction. I wouldn’t add to Tech stocks at current levels (09 July 2019) but I would buy them if the Nasdaq were 5% lower. Currently, 3050 looks like a likely target for the S&P 500.
- A conservative strategy could be to exit at S&P500 = 3050 and stay out till at US Presidential opinion polls in Q1 or Q2 2020 (or some other factor) conspires to trigger a 15%+ correction. If you choose to be bolder, you could await 3200-3300. This level could be a TOP before a significant market correction begins.
- If Trump wins a second term, he would no longer worry about being re-elected and the trade rhetoric should ease out. His aim would be to leave an indelible legacy on the US equity markets, keep interest rates low and strengthen demand in the US construction/real estate space.
- If Trump loses, we will have to re-assess the market dynamics at the time. On the plus side, the trade rhetoric may end (although the likes of Sanders and Warren are not too far apart from Trump on China). On the negative side, government activism in big tech will increase and cap rallies.