2/8 Daily Market Note: A Healthy Breather Before the Next Directional Move
Breathers are good
Hey Folks,
Respected economist Jeremy Siegel discussed his views on the U.S. outlook on CNBC this afternoon, and many of his views were ones I certainly agree with.
Most notably he believes that:
The S&P 500 is not as expensive as it was during year 2000, an era of the internet boom that led the index to a 30X P/E ratio. Currently, the S&P 500 has an earnings multiple closer to 20. The index is expensive, but not “outrageous”.
Artificial intelligence is going to lead to significant cost savings down the road for companies (he hinted at a further thinning out of workforces).
The market currently cares more about a strong economy than rate cuts, not the other way around.
Rate cuts due to a slowing economy will be very bearish.
His base case forecast is that U.S. markets have about 5-8% of upside left for the remainder of the year. Very doable in my view.
Today’s market auction has been range-bound, suggesting that the indices are recharging for another directional move soon. Breadth improved modestly today, and the SPY & QQQ are pinned towards the high of day. Pain trade continues to be to the upside.
Meanwhile, in Hong Kong, the Hang Seng index continues to show evidence that it is in a process of continually putting in Higher-Lows. With the Policy Put that policy makers are putting in place, I do believe that they will try to defend Hang Seng at the 15,000 level (if it gets there again).
Despite Alibaba’s poor post-earnings reaction, I rate China’s net direction to be in “recovery mode”.
Alibaba’s post-earnings selloff is not a surprise to us given our observation of its mean-reverting nature, and this time around, we were able to capture the upside advance to 78.
Upon a further significant selloff in China, I will once again share my thoughts on any potential tactical 1-2 day bounce. These windows of opportunity are usually pretty short.
There will be opportunity again in both U.S. and China. Probably soon.