WHY BULL MARKETS DON’T DIE OF OLD AGE CFA SOCIETY DAYTON May 29, 2018 Ryan Detrick, CMT Senior Market Strategist Vice President LPL Research LPL Financial Member FINRA/SIPC Member FINRA/SIPC 1
LPL Financial Member FINRA/SIPC 2
LET’S TRY ONE MORE LPL Financial Member FINRA/SIPC 3
Why did God create economists? LPL Financial Member FINRA/SIPC 4
To make weather forecasters look good! LPL Financial Member FINRA/SIPC 5
Second Longest Recovery Since WWII, Can It Last? LPL Financial Member FINRA/SIPC 6
What Are Rate Hikes Telling Us? LPL Financial Member FINRA/SIPC 7
What About A Peak In Manufacturing? The U.S. Institute for Supply Managers (ISM) manufacturing index is an economic indicator derived from monthly surveys of private sector companies, and is intended to show the economic health of the U.S. manufacturing sector. A PMI of more than 50 indicates expansion in the manufacturing sector, a reading below 50 indicates contraction, and a reading of 50 indicates no change. LPL Financial Member FINRA/SIPC 8
WHO COULD IT BE? LPL Financial Member FINRA/SIPC 9
REALLY? LPL Financial Member FINRA/SIPC 10
SIZE OF TARIFFS STILL DWARFED BY FISCAL STIMULUS $ Impact in 2018 600 500 Fiscal Policy Tariffs Estimated 400 = $800 Billion = $81.5 Billion 300 200 100 0 Steel 232 232 China 301 301 China 301 301 Tax Cuts Spending Repatriation Retaliation Retaliation Retaliation (est.) (est.) (est.) Source: LPL Research, Strategas Research Partners 4/11/18 LPL Financial Member FINRA/SIPC 11
“Hubris sells, humility survives." Source Unknown Source: StockCharts 3/6/18. LPL Financial Member FINRA/SIPC 12
One of Our Favorite Indicators LPL Financial Member FINRA/SIPC 13
LPL Financial Member FINRA/SIPC 14
Everyone Else In The Picture Was Arrested By That Guy LPL Financial Member FINRA/SIPC 15
LPL Financial Member FINRA/SIPC 16
"I can explain the motion of the heavenly bodies, but not the madness of people." Sir Isaac Newton Source: StockCharts 3/6/18. LPL Financial Member FINRA/SIPC 17
Is the Bond Bull Market Over? Source: StockCharts 5/9/18. LPL Financial Member FINRA/SIPC 18
What Scares You? LPL Financial Member FINRA/SIPC 19
What Scares You? LPL Financial Member FINRA/SIPC 20
What Scares You? LPL Financial Member FINRA/SIPC 21
What Scares You? LPL Financial Member FINRA/SIPC 22
What Scares You? Source: WHO LPL Financial Member FINRA/SIPC 23
What Scares You? Source: WHO LPL Financial Member FINRA/SIPC 24
The Yield Curve Shouldn’t Scare You Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year, and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. LPL Financial Member FINRA/SIPC 25
High-Yield and Investment-Grade Spreads at Tightest Levels of Expansion Yield Spread is the difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measure between debt instruments of differing maturities, credit ratings and risk. LPL Financial Member FINRA/SIPC Source: LPL Research, Bloomberg, as of 2/13/2018. 26
Use As A Diversifier Source: LPL Research, Bloomberg, as of 2/13/2018. S&P 500 is used to represent stock performance and the Bloomberg Barclay’s US AGG Index is used to represent bonds. LPL Financial Member FINRA/SIPC 27
Avg. High-Yield Bond Spread - Barclays LPL Financial Member FINRA/SIPC 28
Mortgage-backed securities are subject to credit, default, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of prepayment risk, market and interest rate risk. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. LPL Financial Member FINRA/SIPC 29
“The real key to making money in stocks is not to get scared out of them.” Peter Lynch LPL Financial Member FINRA/SIPC 30
Second Largest Bull Market This chart reflects S&P 500 Index data. LPL Financial Member FINRA/SIPC 31
Room to Run? LPL Financial Member FINRA/SIPC 32
What Just Happened Is Normal LPL Financial Member FINRA/SIPC 33
Is January Telling Us Something? LPL Financial Member FINRA/SIPC 34
Sometimes We Ignore The Obvious LPL Financial Member FINRA/SIPC 35
Sometimes We Ignore The Obvious LPL Financial Member FINRA/SIPC 36
Remember This One? Source: LPL Research, FactSet 01/05/17 LPL Financial Member FINRA/SIPC Indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. 37
This Makes No Sense LPL Financial Member FINRA/SIPC 38
Higher Volatility Doesn’t Equal A Bear Market LPL Financial Member FINRA/SIPC 39
“Who you gonna believe, me or your own eyes?” Groucho Marx LPL Financial Member FINRA/SIPC 40
Bonds Don’t Like Higher Rates, But Stocks Do LPL Financial Member FINRA/SIPC 41
What Can We Expect This Year? Don’t Ignore The Obvious LPL Financial Member FINRA/SIPC 42
Strong Earnings Growth Expected to Continue S&P 500 EPS - Next 12 Months 170 165 160 155 $ Per Share 150 145 140 135 130 125 120 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Source: LPL Research estimates, FactSet as of 5/4/18 LPL Financial Member FINRA/SIPC 43
Strong Earnings Growth Globally Estimates may not develop as predicted. 2018 numbers are estimates. Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. EPS is generally considered to be the single most important variable in determining a share’s price. It is also a major component us ed to calculate the PE valuation ratio. LPL Financial Member FINRA/SIPC 44
Charlie Brown Shirt Bottom? Source: FactSet 05/09/18 Note: Chart indicates S&P 500 Index performance. LPL Financial Member FINRA/SIPC 45
“Never confuse a single defeat with the final defeat." F. Scott Fitzgerald LPL Financial Member FINRA/SIPC 46
LPL Financial Member FINRA/SIPC 47
One Man’s Trash …. LPL Financial Member FINRA/SIPC 48
Another’s Treasure …. LPL Financial Member FINRA/SIPC 49
Emerging Markets Update LPL Financial Member FINRA/SIPC 50
Get Ready To Be Confused LPL Financial Member FINRA/SIPC 51
LPL Financial Member FINRA/SIPC 52
LPL Financial Member FINRA/SIPC 53
LPL Financial Member FINRA/SIPC 54
Internals Remain Strong Source: LPL Financial, FactSet. 04/09/17 The advance/decline line (A/D) is a technical indicator that plots changes in the value of the advance-decline index over a certain time period. Each point on the chart is calculated by taking the difference between the number of advancing/declining issues and adding the result to the previous period's value. LPL Financial Member FINRA/SIPC 55
Economy Is Mature LPL Financial Member FINRA/SIPC 56
When Do Bull Markets Die? LPL Financial Member FINRA/SIPC 57
“If everyone is thinking alike, then somebody isn’t thinking." George S. Patton LPL Financial Member FINRA/SIPC 58
Investors Act Like This Sometimes LPL Financial Member FINRA/SIPC 59
Investors Act Like This Sometimes LPL Financial Member FINRA/SIPC 60
Why You Shouldn’t Always Sell In May A simple moving average (SMA) is a simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react LPL Financial Member FINRA/SIPC 61
LPL Financial Member FINRA/SIPC 62
WHY IT PAYS TO THINK OUTSIDE THE BOX LPL Financial Member FINRA/SIPC 63
KEEPING THE DOCTOR HAPPY LPL Financial Member FINRA/SIPC 64
LPL Financial Member FINRA/SIPC 65
ENJOY THE MOMENT LPL Financial Member FINRA/SIPC 66
Recommend
More recommend
