2016 proved to be challenging for most investors. After a flat market in 2015 equities failed to gain footing with lingering issues globally. The Dow pulled back the the 15,600 area which was a retracement of the August 2015 correction.
Sectors being affected included oil, commodities, petro stocks. The rising interest rates, growth in China, seemed to have caused a chain reaction across many sectors. Rising rates are boosting the dollar across all the major currencies. Gold and silver has been bearish for quite some time and there is intermittent buying.
As of Friday February 6th market close, the tech sector joined in the sell-off. Apple’s reputation to grow as expected, causing it’s stock price to fall through out 2015 in the new year. LinkedIn’s social network for business also suffered a selloff. Howver Facebook the monster social site seems to so promising strength as it’s price action went green during periods of volatility.
Most long term investors have some level of concern, but no real panic selling has ensued. Analysts are aware of most of the issues and do not foresee 2008 repeating itself.
Well, here we are. The Dow ended the year down 2%. Lots of volatility, and little progress toward the upside when looking at the markets as a whole. However, here were a few pockets of opportunity. Namely FANG. Facebook, Amazon, Netflix and Google. Technology led the way with these four stocks taking the lead.
Some market watchers are concerned that these stock are in a bubble stage. Others view the markets as still a cheap place to invest. Fundamentally speaking, valuations while high, are still low relative to the dot.com bust of 2000.
Chart analysis does not see a bear market in the intermediate future with the 50 day moving averages well above the 200 day ma. As for volume, there has not been heavy selling at critical price levels, and correction points.
Price action is positive. The Aug 2015 correction proved to reveal heavy buying in FANG as investors picked up shares at a discount. Support levels are intact and there was no breach of support.
Despite the fed raising interest rates for the first time in a decade stocks behaved quite well shrugging off the rate hike by posting positive gains in all major indexes the day of the rate hike. There is still plenty of money in the economy and the easy money policy is still in force to support future economic growth.
China has some concerned as there was a bit of a slow down in Asia. The real question is if China will continue to be a leader in economic growth. In the short term a lull should be expected. Long term outlook for China is positive given much buying in Chinese equities from major investment firms.
Real estate has burned many people. The prudent investor knows how to see value. It’s been 5 years since the crash in the financial markets. Without a doubt it was heavily tied to the speculative activities going on in real estate. Those who got in early, made millions, those who were last, got hurt really bad. Many people ask if it’s a good time to buy a house. The answer is a resounding yes! We specifically follow the southern California makets and owe much thanks to Irvine Housing Blog, for contributing valuable information about our specific market. After analysis of the current market conditions there are a few factors that contribute to such a positive outlook.
Inventory Is Getting Smaller
Less and less homes are on the open market. The amount of foreclosures on the market is also getting smaller. There has been suspicion that not all foreclosures are listed and the bank have in their possession these properties. So the figures are said to be somewhat invalid. However, after personally speaking to a few development projects, they have cleared much of their unsold inventory as well. Of course this is not a valid research, but the talk of the town, is houses are being sold. There have been a few builders that have been bold enough to step up and start new projects as well. It’s good to see that things are moving along at a steady pace. Not as fast as we would like, but there is still life in the real estate market despite the 2008 bloodbath.
Banks Are More liquid
The transactions in real estate will be reflected in the banking sector as most bank hold a huge stock of foreclosures in their portfolio. Now that inventory is moving, so is the cash flow. Most people don’t understand that the banks never ran out of money. That money was in grid lock, in the form of real estate debt holdings. Thus they could not circulate or lend money to the public. Now that things are moving along, despite higher tax rates you can expect lower interest in borrowing money. The nature of currency and it’s representation of circulating debt requires that it stay in a state of liquidity for the economy to sustain itself.
Prices are “Normal”
What exactly is “normal”? Over the last few hundred years, the average appreciation of real estate value is 6%. So over the course of long term investing, that is the return in value you would accumulate. During that period of time there are booms and busts. The best time to buy with out losing equity in the short term, is to buy at or below that 6% level. This is what is call “Mean Revision” or what could be explained as a return to what is typical in the long term. Those looking to buy a home, should buy now. Real estate should never be speculated on. It is the most illiquid asset, and a holding period of more than 10 years should be considered to get decent returns.
It’s all the talk in the stock market. Analysts have their opinion. Some love the guy, and other want to take the law on in an unruly manner. The big question in Wall Street, “Is Obama is good for our country”. The valid arument can be make from any standpoint. If we seek an answer we should analyze objectively.
Obama shamelessly raised taxes for the average American. The reaction of the public did view the President in a positive light, and his speeches are less impressing. People have less money, therefore spend less. Because we are a consumer society, the very health of the economy relies of people spending. Thus creating jobs, that create money, so we can spend more money. A happy upward spiral of consumerism works in theory. That is what the conservatives monetary policy is like. The problem is it creates inflation so the spiral does come to an end. The very problem with society is the cost of living has risen drastically. Economic theory suggests, that if you raise taxes, and you consume less, prices will come down because lack of demand. The only problem with this, is the adjustment period of prices can be painful. The pain is what we call a recession.
The good news here is, despite what you think or feel at this moment in time. The economy is doing much better. If we take a stand point of analyzing the economy through stock market pricing, it seems to be a more truthful answer. If you’ve ever analyzed stock charts, you come from a school of thought that the “market price” is the “truth” because the investors behind that price have traded it with a vote of confidence. What the chart says is we are out of the slump. The economy has in fact recovered from the financial crisis of 2008. A closer analysis of the chart posted will give you greater insight as to what is going on. It’s all up from here. On the chart you can see the crash in 2009. At at the far right of the chart the Dow Jones is now ABOVE the peak before the crash. In technical analysis, this is a very strong signal that we are entering a brave new bull market.
For most of us, what matters is what we are personally experiencing. Right now jobs are limited, and hiring slowly. People are still in debt and owe taxes. The educational system is on the brink. I can assure you this is the worst it will get. Based on past recessions many technical analysts say we have about 2 years until we are booming again. Keep in mind, this is just a personal opinion. If you’re smart, you’ll start investing in stocks now as many growth stock are undervalued at this point. Those that have invested in 2009 directly after the crash are sitting pretty with gains in their portfolio up to 40%. Future prosperity for the average American requires that they stay diligent in investing for the future. The markets are going higher. Don’t miss out on investing opportunities check out the Best Stock to Buy in 2010 article.
ARM Holdings (ARMH) Microchip maker for the iphone and other mobile devices. Need I say more? Anything associated with the name Apple seems to be making money these days. We are going through a revolution in the stock market as it centers it’s attention to mobile computing. This company holds many of the design patterns on the technology that is driving this outrageous bull market. This is perhaps the number 1 stock pick for 2013. This stock has been hot for the last couple years and is beating earnings estimates quarter after quarter. The outlook on growth seems to be endless at this point in time. With Apple expanding it’s product line horizontally, you bet this stock will go higher.
Hertz Global (HTZ) A car rental agency we all know. Excellent brand recognition, and reliable history of stable earnings. In the past few years they have been experiencing exponential growth in their financials. They are growing internationally, as the global marketplace is a major untapped source for expansion. As other countries become consumer societies, like China and India, goods like rental cars are an essential element needed for a growing society. This stock is just one of the best investments, because it also fits the criteria of a value stock. While we mostly deal in high growth high volatility stocks, this one is also great for the long haul investor.
LinkedIn (LNKD) Now trading at the $150 level. This stock is very surprising. A social network for business professional contacts. This company is somewhat of an underdog. The market didn’t have much faith in this company when it first went public. Now that it has a track record it seems that the company is doing quite well. Over the last few months this stock has called much attention to itself. It has been successful in making a buck or two, and wall street is impressed. This tech based stock is highly speculative in nature and should be handled with caution. While the situation looks rosy for linkedin, there are no barriers to entry to compete in this market place. In other words, some kid could build a social network in his dorm and linkedIn would be a thing of the past. Social networks are hot today, gone today. If you like the taste of quick cash, LinkedIn is a stock to play.
Mastercard (MA) You guessed it, credit cards. This is a no brainer. As money supply gets tighter and tighter for the common household, credit will be used. Credit has always been a hot commodity, and America can’t get enough of it. This stock is already trading in th $500 range. Some might shy away from an expensive stock like this. There is a reason for this. It’s pure quality. This hot stock is expected to grow for the next 10 years. Earnings are solid, growth is found in doing business overseas as well as here in the USA. The branding of Mastercard is a name that will carry it through all market environments as a trusted brand. This company is solid and will be here for the long therm.