Josh Brown (on CNBC, where I turned off the “mute” for a minute) just noted that the S&P total return index just made a new high and transports looked good. Technicals had also “rectified” some of the recent problems.
A market at new highs combined with a long-running rally seems to determine the outlook for many. The term “aging bull” started making the rounds eight years ago. So many are trying to be among the first to predict a market decline. It is a market where success breeds gloom, not like the uber-optimism of 2000.
My working hypothesis is that economic growth is making an expected decline from a period of unrealistic growth. This mean reversion probably means about 2.5%, but lower in Q1.
My game plan, which I described at the start of the year, is to own last year’s laggards. I like homebuilders. My love of chip stocks is finally showing some reward. Payment systems are fine and probably investment managers. I have sold my NAFTA 2.0 basket, since progress seems far away. I want to own health care, but I am watching for more clarity on the political front. (I know – good luck with that!) I hate utilities and other so-called defensive stocks that are part of the most crowded trade. I own very little FAANG. Long-term investors should own some biotech without concern about short-term returns. I prefer consumer discretionary to consumer staples.
This table is a good source – a sector shopping list for those who find my thesis plausible. It is especially fun to be a contrarian when the economic and earnings fundamentals support you. I also love lists of well-documented "headwinds" and "worries." This ever-changing list has little effect on the data.