Market Summary
The U.S. market is moving ahead — as long as the U.S. Dollar stays in a sideways or declining trend.
We’re bullish on U.S. stocks, but very selective about which sectors to be involved in. In our view, a normal seasonal stock market rally should ensue now that the correction of 2015 is over. We are focusing on low-PE stocks with growing earnings.
The Fed has not raised rates, and as we have expected, China’s “devaluation” has proved to be a one-off event rather than a trend; the commodity markets have neither imploded nor generated a slew of bankruptcies — and all the fear and loathing was just your typical Fall shakeout in U.S. and world stocks. Our readers know that this is a seasonal event that happens periodically in U.S. markets. Usually there are some frightening events that coincide with it, and some people always panic and wreck their portfolios by dumping stocks just before prices begin to rise again.
The Current Market: Industrials, Oil, Old Line Technology, Gold and Consumer are Attractive
In technology, the market rotation will turn towards big, solid companies that can be counted on to grow and raise dividends. Many of these can be found in old-line technology and industrials. We mentioned some last week. Also attractive are the oversold, heavily shorted, unloved companies in oil and gold that are moving into favor after having been in the doghouse for some time.
Among the risky stocks are the politically vulnerable stocks of the biotech and pharmaceutical industries, and the potentially politically damaged stocks of the alternative energy industry.
Oil and Gold
We remain bullish on oil as short sellers continue to cover and investors realize that oil will be in demand for decades to come. Gold has been long out of favor, but we see glimmers of inflation in the facts that, first, shortages have appeared in the construction, manufacturing, nursing, and technology sectors; and second, that some inflationary pressures are abroad, and we see the possibility of modest inflation pressure in coming months.
Europe
We remain skeptical about Europe; their problems with Syria and Russia, and the continuing prospect of southern European countries following in Greece’s footsteps, make Europe a trade rather than an investment.
Brazil
Speculators can look at Brazil in this way: almost everything that can go wrong already has. The President may be impeached; the currency has collapsed 65 percent, and the stock market has crashed. Add to that a decline in value of their agricultural, oil, and mineral products, and a huge corruption scandal surrounding all government owned companies and the ruling political party. The news is so bad it beckons the seasoned speculator.
