Trade war escalates, S&P has worst loss of year

U.S. stocks plunged to their worst loss of the year Monday and investors around the world scrambled to sell on worries about how much President Donald Trump’s worsening trade war will damage the global economy. (Aug. 5)

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Keiser Report: Money Supply Drives Rally (E1366)

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In this episode of the Keiser Report, Max and Stacy discuss the money supply increasing at the same pace as the S&P 500 stock market rally. Could they have anything to do with each other? Hmmmm. We wonder. They also discuss the rapidly increasing rents causing voters to demand action from candidates when, perhaps, the only problem is the central banks printing money for their member banks.

In the second half, Max interviews Steve Beauregard of Bloq about building in a bitcoin bear market.

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US markets suffer worst December since Great Depression, where is this all heading?

The Dow Jones Industrial Average plunged more than 650 points on Monday after Donald Trump renewed his attack on the Federal Reserve on Twitter. Meanwhile, the S&P 500 has suffered its worst December on record.

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NYSE Marks Longest Bull Run In History

(22 Aug 2018) For many younger investors, the stock market has only gone one direction: up. The S&P 500 is in the midst of its longest-ever bull run, and it’s been nearly nine and a half years since the last drop of 20 percent. (Aug. 22)

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A Strategist Reveals What Can Keep The Market Soaring

David Kelly, Chief Global Strategist of JPMorgan Asset Management, says there is only one god of the stock market and that is future earnings growth. He believes this year’s strong earnings growth will push the market higher in 2018. The biggest threat he sees to equities is a substantially worse trade conflict.

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Following is a transcript of the video:
Sara Silverstein: And what’s your outlook for the markets? Do you think that the US stock market is expensive right now?

David Kelly: No, I think the US market is okay. I mean, it’s had a sort of rocky kind of year, and I think the reason for that is people have a hard time appreciating just the earnings we’re receiving right now. The problem is, I think stock market investing is kind of a monotheistic religion; there’s only one god, and that is future earnings growth. And the thing is, you cannot see much future earnings growth from here. Next year it’s going to be tougher than this year. But look how good it’s this year. I mean, this year we think we’re going to do about 26% year-over-year growth in operating earnings per share for the S&P 500. That’s extraordinary in the tenth year of a bull market in equities. And it’s like you’re getting five years’ of earnings growth packed into this year. So I think we should appreciate, and I think investors eventually will appreciate, just how good these earnings are right now, the ability of companies to earn this cash, to distribute this cash, that should push the market up. And I think the market, barring some worse trade conflict, I think the market will probably move up between now and the end of the year.

Silverstein: And that’s my next question. What would it take for the market to dive? Is trade the biggest —

Kelly: I think there is a risk there, if we keep on doubling down on a trade conflict. Remember, people like Xi Jinping, they’re not going to capitulate here, because they are politicians, in a broader sense, in China. They cannot be seen to lose face over this. And they think that — you know, there’s no midterm elections in China. And because of that, they’re not going to give in easy, and so the danger is, the trade war gets prolonged.

Now, honestly, I think we may see sort of a trade war ceasefire before the midterm elections, because I think the pushback on Washington about this trade war is getting bigger and bigger and bigger, and eventually I think that’s going to have an impact on the administration. But there is a risk.

One of the biggest risks facing this economy is that we keep on pushing up tariffs, because tariffs are such a bad idea. It is an idea twice-cursed. It curses the person inflicting the tariffs and it curses the one upon whom the tariffs are inflicted. It’s just going to slow down global growth. It slows down economic growth in the United States, so it is a big risk, but hopefully it’s one that we sort of back away from before the end of the year.

Silverstein: And where else are you seeing opportunities for investors?

Kelly: Well, I think there’s a lot of opportunities in equities overall, particularly outside the United States. And remember, we’re going to slow down eventually to about 2% growth. We don’t have the population growth, we don’t have the workforce growth, honestly, to do more than that. But if you look overseas, Europe’s still got a lot of unemployment, that unemployment rate’s coming down, they can grow faster. Emerging markets, there’s always something going wrong in emerging markets, but overall they’ve got much better long-term growth prospects. And then if you look at valuations, the US is fairly valued, but Europe is cheaper than average, and emerging markets are cheaper than average. So I honestly think that if the US can give you about 5% total return per year over the next five years, I think Europe and emerging markets can give you about 10%. I think that’s where the opportunity is.

BlackRock’s $1.8 Trillion Bond Chief Shares His Investment Outlook

Rick Rieder, who oversees $1.8 trillion as chief investment officer of fixed income at BlackRock, says the 10-year touching 3% is a big deal but the real story is the at the front end of the curve.

Rieder points out that Treasury bills are paying out hundreds of billions of dollars in income a year particularly at the front end. More importantly, the yield on 2-year treasuries is now higher than the S&P 500 dividend yield.

Rieder says inflation is going higher but he is not at all worried about it getting out of control. He also says 2% is clearly not the right inflation target for the Fed. 

Rieder says the biggest risk he sees to the market is how things play out with China. 

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Investors Have Gotten Spoiled By High Returns And Low Volatility

Things have been too good to be true for investors for the past few years. According to Fidelity Investments, “From March 2009 to January 2018 the S&P 500 gained 364%, generating a compound annual growth rate twice the historical average, amid much lower volatility.”

Volatility has come back and many investors are wondering what happens now. Fidelity director of global macro Jurrien Timmer says its time for investors to lower their expectations. The good news, according to Timmer, is that “over the long run, stock prices generally follow earnings, and earnings are going up.” However, there is plenty of bad news. Timmer explains in his recent note that valuations are under pressure from both tighter monetary policy and anti-trade policies. 

According to Timmer, stocks won’t necessarily suffer a major decline, thanks to strong earnings growth, but investors should lower their expectations. 

Also, investors should consider rebalancing their portfolios. Last week we spoke to the chief investment strategist of PGIM Fixed Income, Robert Tipp. He said the thing he is most worried about investors getting wrong is having an overallocation to equities as that part of their portfolio has grown. Analysis from Fidelity Investments makes this danger clear: “Since March of 2009, a hypothetical portfolio of 60% S&P 500 Index stocks and 40% bonds would have turned into a portfolio of 83% stocks and 17% bonds if it had not been rebalanced by now.”

Read the full note here: https://bit.ly/2Is4kTa

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There’s one part of the Trump trade that’s still crushing it

Business Insider executive editor Sara Silverstein talks about the stock market’s rally one year into President Donald Trump’s term. She finds that despite Trump’s constant attempts to take credit for stock gains, that his return for the first 12 months is just the fifth-best in the post-war era. She shares reporting from Business Insider’s Joe Ciolli that while some parts of the so-called “Trump trade” may have faded, companies with small and medium business exposure have consistently outperformed since last November. A Goldman index tracking that group of stocks has climbed 38% over the past year, nearly double the S&P 500, while the NFIB Small Business Optimism Index hit its highest level in 12 years just months after Trump’s election.
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A $1 trillion money manager explains why stocks are fairly priced

Business Insider deputy executive editor Matt Turner speaks to David Hunt, president and CEO of PGIM, who says that on a forward P/E basis, the S&P 500 is fairly priced given the current low-interest rate environment. He says that his firm is constructive on equities at the moment.

Matt Turner: One of the research notes that I received this morning made the point that monetary policy is going to dominate stock trading for the near term. Do you agree with that? Or do you think there’s more to the story than that?

David Hunt: I think that there is quite a bit more to the story. There’s no question that at today’s valuation — so if you look at the S&P overall, forward PE’s are about 18.5, the long-term average is more like 15.5 — you could say that it looks a little bit rich. But at today’s interest rates, actually, it looks pretty fairly priced. But if we had a sudden rise in rates you would begin to think probably that the current prices are, without a doubt, a touch frothy. But we would not say that’s the base case. We actually think the base case is that we’re quite constructive on equities at the moment, but we do think that the risks of a gradual normalization remain around the balance sheet of the Fed.
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Making sense of an extremely expensive stock market

Business Insider CEO Henry Blodget discusses the stock market’s ascent to yet another set of new highs, and drills down on high valuations. He cites investment manager John Hussman, who points out that the market is now the most expensive of all time, and predicts a 60% loss in the S&P 500 before the end of the current cycle. Blodget contrasts that view with the one expressed by billionaire investor Warren Buffett this week, who said valuations make sense right now, because of how low interest rates are.

He then kicks the valuation discussion over to Business Insider executive editor Sara Silverstein, who argues that Hussman’s valuation case adjusts for the below average profit margin during the tech bubble which may not be fair. Blodget offers a rebuttal to that, highlighting a chart showing historically elevated levels in a measure of US market cap to GDP, and says that while this doesn’t signal an imminent downturn, one will come eventually. Silverstein responds by noting that being two years early in calling a market top makes you wrong. She stresses that timing is everything.

Silverstein walks through the Fidelity Chart of the Week, which shows that stock market breadth is the lowest since the election, which could be a signal of weakness.

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