As a long time conservative and highly disciplined markets player, I have to say that both the
stock and bond market are just too rich for my blood. I have some major retirement projects
at hand, but before going, I will leave some commentary on the major capital markets.
I have to say that with the market just below its most long term overbought condition in nearly 40
years, I have been a little surprised that we have not seen a more negative reaction. I do not pretend
to have a good idea of how stocks will behave for the rest of 2018, but I have some suspicions. For
one, I believe the bigger funds are playing the presidential election cycle. This is year two of The
Donald's reign, and in keeping with the cycle, players are expecting a strong positive run later in
2018, with a consensus high for the year of about SPX 3000. I also suspect that most big time
investors expect the current Trump initiated trade conflicts to remain inherently modest and not
escalate into a much larger and open ended trade war with the US vs. China the key players. In my
view China's aggressive mercantilism needs a nasty comeuppance, but Trump may not want to
call in heavy fire on his own position. As The Donald himself likes to say, "We'll have to wait and
see" on this one. The market also does not seem very concerned about a Dem "blue wave" victory
in the upcoming mid term election this Nov. Lord, would such an event shake things up in DC.
The SPX is now currently rising above my estimate of SPX fair value of 2720 to run well into
2019. This is a rather liberal estimate and leaves significant downside for the market if the
fundamentals disappoint expectations. The market has broken its trend line off the 2016 low, but
is still postive above its rising 40 week m/a. SPX weekly I would have an interest in a long side
trade if the SPX somehow rolls on down to 2500.
By the way, should the SPX enter a strong, late cycle powerful rally up to 3200 by early 2019,
it will have reached bubble territory on my super long term semi-log chart.
Right now, I would not trade the 30yr Treasury in my account below 4%. However, as the
cycle progresses toward an eventual economic downturn, and if the inflation rate is still
modest, that would suggest to me that a fresh recession could again introduce deflation, and
that would introduce a new element of interest for sure.
I am monitoring this one for a long side trade provided the USD falls sharply out of favor.
I plan to return to the blog again in November.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!