MARKETCYCLE WEALTH MANAGEMENT

 

This posting is sort of long, but it mostly contains images.  You do not have to understand the images because they are clearly explained in the sentence above each image.  There is a brief market summary (and 2 important stock market charts, short-term and long-term) at the end of this month’s posting.  August and September were weak and volatile, as we predicted in a Client Market Update… not the sort of thing that you step out of the way of, but the kind of situation that just requires patience. The remainder of September might be a bit volatile, but in the intermediate term and in the long term, MarketCycle is still very bullish.  This posting explains exactly why.  I still expect the S&P-500 to reach the old record high of 4800 by the end of this year or by very early in 2024.

 

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This is the tale of two houses.  Both houses, shown above, are equally nice and both are essentially identical.

The house on the left is selling for $500,000; the house on the right is selling for $250,000.

You want to buy one of them.  Which one should you buy?

The obvious no-brainer answer is that you should buy the much cheaper of the two similar houses, the one on the right.  Valuations matter.

Yes, you are very smart.

 

But if this were an investment asset such as a “stock” (or bond, currency or commodity) you would likely end up buying the stock on the left even though it is more expensive.  This is because you want to follow the herd; you have a fear of missing out; you want to own that very expensive stock on the left because it is obviously somehow better, even though it is fairly identical to the discounted one on the right.

Yes, investors are not always smart.

 

What you pay for something is important.”

Mark Cortazzo, Wealth Track, September 8th, 2023

 

Even though most investors are still currently hiding in “cash” (hedge funds have their highest cash allocation in history) the recent 2023 stock market runnup involved the continual buying of a handful of 7 stocks which drove the Nasdaq-100 and S&P-500 stock indexes higher while the remaining few thousand U.S. stocks lagged.  Many of these stocks are as good as or perhaps much better than the 7 stocks whose buying drove the stock market indexes ever higher.  I’m suggesting that folks might want to buy the early-cycle high-quality stocks that haven’t already run up to record highs; the ones that are still of value and therefore valuable.  I have a list of these currently undervalued early-cycle assets below.

Which early-cycle stocks are cheap and under-valued right now? 

1. Cash-rich quality small-cap stocks  (low quality smallcaps are not a good choice)
2. Pure value large-cap stocks
3. High-beta (big moving) large-cap stocks
4. Technology stocks  (the long-term Secular theme is innovative technology and AI and robotics)
5. Consumer discretionary stocks
6. Industrial stocks
7. Preferred shares (must be diversified)
8. Convertible bonds (bonds that can be converted into stocks at a later date… this is a huge benefit)
9. Home builders  (currently too late to buy, they’ve already moved higher)

 

Professional investors are pre-positioning into early-cycle sectors (see the light blue diamonds for current positioning.  (‘Early-cycle’ means the first few years of a new bull market… Chart is courtesy of Deutsche Bank):

 

Artificial Intelligence?  Most of the 2023 runnup in stocks was accomplished via 7 “AI” stocks that just happen to be the biggest holdings of the Nasdaq-100 and S&P-500 stock indexes.  My thesis is that one should buy the low priced AI stocks as shown below (light blue line).  Buy good values and have patience.  (Chart courtesy of Goldman Sachs):

 

 

The key to successful investing is having everyone agree with you, but at a later date.”

James Grant, Interest Rate Observer, September 8th, 2023

 

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My opinion on small-cap stocks?  Good things happen to cheap assets!”

Josh Brown, CNBC commentator, September 7th, 2023

 

This next chart shows how cheap small-cap stocks currently are.  Their P/E is at an extremely low 11.5 and this shows their current “fire-sale” prices:

 

This next chart shows what is happening to manufacturing in the United States.  You can see the giant move upward on the far right of this chart.  Despite the continued chorus of calls for a recession, this chart actually shows the underlying renewed super-strength of the U.S. economy & stock market.  Something important is happening.  (Chart courtesy of WolfStreet via the Census Bureau):

 

22V Research offers a very good institutional level investing research program for $5000 (or higher) per year.  Below is a recent chart that they showed on a webcast.  MarketCycle has stated that, while the stock market bottom was in late-October of 2022, the new cyclical bull market didn’t start until mid-June of 2023 because of the economy going through a 6 month long rolling recession.  22V Research now states that they also believe that the new (still weak) cyclical stock bull market recently started again in June.

Blue line below = bullish periods… and look at all of the “orange-line” showing the bearish turmoil over the past four years!  As they said in their Friday, September 8th webcast, “This has been the most difficult 4 year period in all of investing history.”  I’ve stated the same thing in the past few Client MarketCycle Updates.  We all suffered through the 2020 Covid Pandemic bear market, the 2021 inflation spike, an even bigger 2022 bear market, a 7 month long 2022-2023 rolling recession and a Federal Reserve that still doesn’t know when to get out of its own way… but good times are close-at-hand and I can see it clearly in MarketCycle’s proprietary system of indicators.  (Chart courtesy of 22V Research):

 

Corporate earnings will show future strength because operating profit margins are historically high @ 11.9%.  This will send the stock market higher.  (Chart courtesy of Charlie Bilello Blogspot):

 

Inflation is still falling, although our indicators suggest that the pace of the fall is already slowing and that the eventual bottom, after first overshooting to the downside, will settle at around 3%-3.5% and not the Fed’s beloved 2%.  I believe that the Federal Reserve will eventually embark on a program of re-training us to accept that “the new 2% is now 3% because it indicates a strong economy.” (Chart courtesy of The Daily Shot):

 

80% of professional investors believe that inflation will continue to move lower. (Chart courtesy of Bank of America Global Research):

 

The Fed is at (or very near) the top of its rate increases.  When rates stop going up, bonds stop going down since interest rates and bond prices move in opposite directions.  There is a record ‘short’ position on both high-quality corporate bonds and on Treasury-bonds.  A ‘short’ is a bet that bonds will fall.  They are making a big mistake.  When this short position unwinds, and this is not too far away, bonds may rapidly soar higher, like a dam breaking.  But investors will have to pre-position into bonds to catch this move because it is likely to unwind quickly.  Importantly, MarketCycle’s bond holdings are paying a whopping 19% interest because they write options; this is like a “free gift” that made me interested in bonds a bit sooner than I otherwise would have been.

Investors have given up on bonds and have now sold their ‘long’ positions.  But these temporary & spiking bond sell-offs always preceed prolonged bond bull markets. (Chart from mid-August 2023 and courtesy of FundStrat Research):

 

The result of all of this bond selling is that bonds have never been this oversold as compared to stocks; bonds have nowhere to go but up.  The higher the red dot (shown below), the more that bonds are oversold. (Chart courtesy of The Daily Shot):

 

So, bonds are lower because rates are higher, they move in opposite directions.  Rates were recently moving higher because people mistakenly believe that inflation will never normalize EVEN THOUGH IT ALREADY IS DOING SO!

This next graph is pure genius in its simplicity; bonds are now “low risk”:

 

And recent advice from Tom Lee of Fundstrat Research, who believes that the Fed is already done hiking rates. He sees cheaper mortgages and profitatble bonds.  (Snippet taken off of a CNBC video):

 

 

There is ‘income’ in fixed-income again.  The unusual brutal year for bonds in 2022 likely won’t repeat itself any time soon.”

Liz Ann Sonders of Charles Schwab, on the podcast of The State of the Markets, August 16th, 2023

 

MarketCycle also believes that gold is about to enter a new bull market and, as with bonds, we apparently aren’t the only ones buying.  On a long-term chart, Gold has formed a gigantic multi-year bullish cup & handle pattern; I expect gold to (gradually) reach truly astronomical levels by the late 2030’s. (Chart courtesy of the CTA):

 

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So, where is the money coming from to prop up the economy?

Corporations are loaded with money. (Chart courtesy of Goldman Sachs):

 

If you own stocks, you own a portion of the corporation that issues the stock.  If you own a stock “share” from Apple Corporation, then you own (and receive) a “share” of the profits of Apple Corporation.  A stock “share” is an amazing thing, it is not a gamble, it is a “share” of profits, it is a piece of the action, it is amazing!  

Profits make corporations strong.  Corporate profits are currently very high.  Strong corporations make strong and bullish stock markets.

 

The government has been handing out money like there is no tomorrow!  This loose money will help to prop up the U.S. economy for an extended period.  (Chart courtesy of Yahoo Finance):

 

U.S. Gross Domestic Product (GDP), what the economy produces, is STRONG. (Chart courtesy of the Federal Reserve):

 

Corporate earnings have apparently bottomed and are turning BULLISH.  Corporate earnings directly determine the direction of the stock market.  (Chart courtesy of Fidelity Research):

 

Eight men hold as much wealth as 3.6-BILLION other people.”

 

Individual households have unusually strong balance sheets; they are sitting on a lot of cash that is going to eventually find its way into the stock and bond markets, steadily driving profits higher.  (Chart courtesy of the Federal Reserve):

 

And consumers keep spending and this keeps the economy strong.  (Chart courtesy of the Census Bureau):

 

Money from all over the globe is flowing into the U.S. economy and markets. (Chart courtesy of Haver Analytics):

 

 

SUMMARY:  BULLISH

Near-term headwinds that MarketCycle is watching:

1. Resumption of student loan payments (although past payments were not considered headwinds)
2. Possible temporary Federal Government shutdown if funding not approved before October (but this will be worked out)
3. Reduced auto production and manufacturing if the UAW strike continues for a longer period (but this will eventually be worked out)

August and September are often weak months for the stock market and that has certainly proved to be true this year.   We may have another week of turbulance, and in fact the market might be down again during the week of Sept 18-22, and then we have a good chance of moving higher with a year end target (or beginning of next year) of 4800.  We must be patient.

 

The S&P-500 long-tern chart shows a continuation of the secular bull market, as the third leg higher begins in earnest:

 

I’m excited about oversold assets such as pure-value stocks, quality small-caps, high-beta large-cap stocks, select sectors of stocks, convertible bonds, high-quality corporate bonds, long-dated Treasury-bonds, gold-bullion, etc.   We have to remember that we are still in a SECULAR bull market, so the tendency is going to be for the markets to grind higher over time.  The strongest portion of this Secular bull market is likely to be in the final years of 2024-2029, where stocks may eventually go up parabolically, especially in its final years.

PARABOLIC:  We are likely now at the “X” on this next chart.  In my opinion, 2029 is the likely Secular bull market end point with a big gain in the works and with dividends and income further increasing the final absolute return.  My advice is to let every penny ride along… and just be patient.

 

 

Outstanding investors are patient.  The stock market is a device for transferring money from the impatient to the patient.  Time and compounding are two of the most powerful forces in markets and in your portfolio.”

Warren Buffett

 

 

Thanks for reading!

MarketCycle Wealth Management is in the business of navigating your investment account through rough waters… give us a chance!!  There is a contact tab at the top of our website.

Our paid member’s REPORT site can be reached via the connecting link on our webpage.

 

 

MARKET CYCLE  —  TREND FOLLOWING  —  DUAL MOMENTUM  —  RELATIVE STRENGTH  —  HEDGE FUND

MARKETCYCLE WEALTH MANAGEMENT

 

MarketCycle’s 2023 end-of-year target is 4800 and as far as I know, we were the first to suggest this; we made this call back when most investors were still hiding in cash.  Now some of the big institutions are predicting an even higher level than 4800 by year’s end.

We pre-positioned into early-stage assets, those portfolio positions that normally outperform during the first few years of all new cyclical stock bull markets (like the one that we recently entered).  We bought at fire-sale bargain prices and we were willing to wait for them to take off, which they finally started to do in June of 2023.  This first chart shows how these assets did after the prior bear market bottom (the Financial Crash of 2008) from March of 2009 to early 2015.  They excelled.  The 1st red bar shows the S&P-500 and the 6 other bars show our early-stage holdings.  Percentage gains are shown at the far right and at the bottom of each bar:

 

Near-term S&P-500 trend channel with a likely end-of-year target of 4800, which takes us at or into record territory.  (MarketCycle’s most recent client Update said that the market was about to temporarily pull back, which it did the very next day.):

 

Longer-term SECULAR view of the S&P-500 with our 2029 target of 10,000 (or likely even higher):

 

Going forward, small-cap and mid-cap stocks may beat the S&P-500:

 

And small-cap (small company) stocks in particular may soundly beat the S&P-500.  We have to remember that not very long ago Apple, Amazon, Facebook, Google, Netflix, Microsoft, Nvidia, Tesla, etc were all SMALL companies. (The “LINK” just below is disabled):

 

But “seasonality” suggests possible weakness during August and September (when vacations are more important than investing) but then the market re-gains strength from October into early 2024:

 

Consumer spending makes up 70% of the U.S. economy.  Consumer confidence is strong (chart via the NBER):

 

And consumer sentiment is likewise strong (chart via the Federal Reserve):

 

The other 30% of the U.S. economy is manufacturing.  Importantly, manufacturing is rapidly coming back to the United States, suggesting that the U.S. will continue to lead in strength relative to all other global regions (the U.S. will likely lead for another 6 years):

 

And finally, it is not just artificial intelligence that will lead this final multi-year bull market run, but also global clean energy:

 

Thanks for reading!

MarketCycle Wealth Management is in the business of navigating your investment account through rough waters.  The process is easy.  There is a contact tab at the top of our website.

Our paid members REPORT site can be reached via the connecting link on this website.

 

 

MARKET CYCLE  —  TREND FOLLOWING  —  RELATIVE STRENGTH  —  DUAL MOMENTUM  —  HEDGE FUND

 

MarketCycle Wealth Management

 

Okay, if you can’t read a long blog and if you have 3-4 free minutes, then this one’s for you.

A market cycle is a (roughly) seven year long period that contains a multi-year bull market followed by a 3-18 month correction of a stock market that has gone too high; this is also known as a bear market.  Once completed, the cycle repeats all over again.

Investors can make money in both directions, bull or bear.

There are secular (roughly 20 year long) bullish factors that can cause especially strong stock performance.  They are caused by long-lasting market conditions, like relatively low inflation or by the market reaching ridiculously low valuations.  We are currently in a secular bull market for stocks and I expect this strength to continue until some time around 2029 (2009 to 2029 = 20 years).  In 2029 an entire confluence of economic and demographic factors hit a brick wall.

In a 20 year SECULAR BULL (2009-2029?):  Stock bull markets are strong and long lasting and all bear markets are weak and short lived.

In the 10 year SECULAR BEAR that always follows the bull (2029-2039?):  Stock bull markets will be shorter (rolling like a roller coaster) and all bear markets will be stronger and long lasting but they can be very profitable if one is positioned correctly (as in 2000-2009).

 

The below chart shows the multiple cyclical bull and bear markets contained within the current 20 year long secular trend-channel that will likely reach its completion in 2029.  The stock market has much higher to go.  My low-end target is S&P-500 to 10,000 by 2029.  It likely goes higher than that and at the very end, it might melt up, moving rapidly above its trend channel just as it did in 1999:

 

This is a chart of the S&P-500 that looks similar to the chart above, but it runs from the year 1900 to today which is 123 years.  Even the interspersed secular bear markets don’t look very troubling.  The profit line goes from lower left to upper right.  Investing is not gambling, profits are skewed toward the investor, risk is lower than people think and patience is the investor’s friend.

 

And, as has been steadily happening since 2011, all strength is with the United States economy and markets.  The U.S. leads the world in technology development; AI and robotics will lead the U.S. forward and this, along with clean energy, will be the secular themes for the remainder of this secular cycle. Demographics are STRONGLY skewed toward the U.S. until 2029 and manufacturing is rapidly coming BACK to the United States as China falls from grace.   This chart is one of the most powerful that I’ve see in some time.  It shows what is happening in U.S. manufacturing and it is shown in “$-billions per month.”  This is not a weak economy.

 

MarketCycle Wealth Management currently has its client accounts positioned into those specific assets that perform well during the first few years of a new cyclical bull market (plus we continually “buy-and-hold” an equal amount of low-risk core holdings).  These strong early-stage assets are just now beginning to accelerate, so it isn’t too late for investors to jump in.  

We constantly monitor risk levels, which we are extremely good at, and we would quickly move to protect client accounts if economic (recession?) or market conditions begin to deteriorate.

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Current strength is seen in very specific early-stage stock sectors & factors & regions (that do well during the first half of any new bull market), fixed-rate quality bonds, preferred shares, gold bullion and even Bitcoin (which should only be held in a tiny allocation).

Current weakness is seen in the USDollar (it is moving sideways), most emerging market stocks (but India is strong), most commodities and corresponding stocks, utility stocks, consumer staples stocks, floating-rate bonds and low-quality bonds.

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SUMMARY:  MarketCycle correctly turned bullish in late October of 2022 in a world where most professional and retail investors have (finally) turned sort-of-bullish during the past couple of months.

 

 

 

That’s it!  Thanks for reading.

MarketCycle Wealth Management is in the business of navigating your investment account through the market cycles.  The process is simple.  We work hard to protect accounts during high risk periods and we work hard to earn our keep.

The paid member’s REPORT site can be reached via the link on this webpage.

 

 

MARKET CYCLE  —  TREND FOLLOWING  —  DUAL MOMENTUM  —  RELATIVE STRENGTH  —  HEDGE FUND

MarketCycle Wealth Management

 

“The market is behaving pretty delusionally.”  Amanda Agati, Chief Investment Officer at PNC Financial Services Asset Management Group, June 16, 2023

 

Of course, “delusionally” means “incorrectly or falsely.”  The above statement actually means that the market is not doing what PNC Financial Services believes it should be doing.  Many others are in the same boat.  But it is a pretty reasonable bet that the market is, in fact, never wrong.  All information is instantly priced into the market; it knows everything long before you do.  It has no opinions or emotional or psychological biases.  It has no ego.  It has no goal.  It just prices in all information instantly and it projects the trend of this information out into the future by about 6-9 months.  Today, right now, it is saying what all of the current information is suggesting will be happening in the intermediate-term future.  The market is very smart; the market is never wrong; the market is currently bullish.

One of the most important things that MarketCycle has developed is the ability to fairly correctly project current data trends out into the future.  Our goal was to copy what the market itself was doing because the market is never wrong.  This was an important discovery.  This is how we knew, for example, that an inflation spike had begun way back in the early Spring of 2020, but the Federal Reserve didn’t pick up on it until 2022, over two years later.  If the Fed had raised rates by even a small amount back in 2020, then the bear market of 2022 may have been a trifling three month affair.

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The stock market has been doing great; up for five weeks in a row.  Generally up since October of 2022, as we predicted, although it has rolled sideways for much of that time.  In my opinion, this sideways period was actually a rolling type of recession where the market slowly worked off its problems over a period of months.  I only saw this in hindsight.

And now?  Our select assets, all picked for their normal prowess during the (multi-year) first half of any new stock bull market cycle, are suddenly doing quite well.  One has to pre-position and then wait patiently.  There is an old Wall Street saying:  “What a wise person does at the beginning, a fool does at the end.”

And right now??  On a near-term basis, the stock market is temporarily overbought.  I expect a fairly brief and shallow pullback to arrive shortly, followed by another leg up.  In my opinion, all pullbacks will be opportunities to put new money to work, BUT the financial press/shows (like CNBC and Bloomberg) will bring on guests that will re-state that the world is “about to end.”

It is possible that between now and the end of this year there may be two more big legs UP with shallow pullbacks between each one.

There is tons of money still sitting on the sidelines, afraid to move into the markets and “margin” (money borrowed to put into investment accounts) is still historically quite low.  This represents the potential for a steady “feed” of money into the markets, and as FOMO (fear of mssing out) builds, the market could get quite excited.

Margin is still very low and this is very bullish going forward:

 

I could be wrong, but I now believe that the market naturally wants to touch the prior all time highs, S&P-500 to 4800, by the end of this year (or very early next year).  At that point we could get a somewhat larger multi-week pullback before even more gains arrive.  4800 may be the highest end-of-year projection on Wall Street.  As of last week, Tom Lee of Fundstrat Institutional Research has also upped his 2023 target to 4800.  Ed Yardeni (of Yardeni Research) is just acknowledging the exact same 4800 target.

I definitely still believe that we will easily see the S&P-500 at 10,000 in only a few years from now.  

On the below chart from Fidelity Research (and Bloomberg), they believe that the current stock market (shown via the black line) will follow the pattern of the light blue line higher; they see accounts DOUBLING over the next three years (sort of a 33% gain per year).  MarketCycle sees today as “just the start” of the current new cyclical bull market that likely ends in roughly 6 years, the strongest period normally being near the end of the bull market (sort of a repeat of the prior tech bubble in 1999).

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Recession?  I’m about the only human that feels that it already arrived (and that it has now ended) in the very unusual form of a rolling recession:

 

Inflation?  Our system of proprietary indicators has been showing inflation falling for a year now.  This is a good thing.  When I said that inflation was a spike that had peaked and that it would go down, a number of people told me that I was wrong and that it had reached a new permanent high plateau.  Oh, well.  My continued prediction is that inflation won’t be a real problem until the 2030’s.

For what it’s worth, a chart from Truflation showing the PPI for Personal Consumption @ a very low 2.41% (I also confirmed this via the Bureau of Economic Analysis).  Just one year ago it was at 12%.

 

Gross Domestic Product (GDP)?  Strong.

Employment?  Strong.

Earnings?  Strong

The United States is still leading in relative strength. Europe and Japan are fairly strong.  China can’t seem to be able to get out of its own way.

Gold bullion and fixed-rate bonds (and possibly Bitcoin) may all be at the early beginnings of their own cyclical bull markets.

Two years ago MarketCycle wrote a blog on artificial intelligence (AI) and robotics.  We suggested that AI and robotics would be the upcoming stock market theme for the final 5 years of this secular bull market.  In fact, both AI and robotics will increase corporate profit margins by such a significant factor, that stocks will have no other choice but to go higher (much higher) until this secular bull market eventually reaches its demise. 

The AI “bubble” (far right, tiny green ‘AI’ line below) that people are talking about is just in its infancy… it has a very long way yet to run:

 

So, as always, I’ve been pushing against the wall of market participant’s beliefs ever since October of 2022.  I’ve been bullish and I’m still bullish… but I’m willing to change my mind.  I’ll worry about risk when our proprietary array of risk indicators start to show that risk is rising… and that most certainly is NOT happening right now.

 

Thanks for reading!

This posting was written on Sunday June 18, 2023

Our paid member’s REPORT site can be reached via the connecting website link.

MarketCycle Wealth Management is in the business of navigating your investment account through rough waters.  There is a “contact” tab on the website.  It’s easy!  And advice is always free to anyone.

 

 

MARKET CYCLE  —  TREND FOLLOWING  —  RELATIVE STRENGTH  —  LOW VOLATILITY  —  HEDGE FUNDS