- while i agree sp500 stocks recovered in part due to dovish rate shift, its also because of the forward curve of analyst expectations
- 1q2016 was slated to be lowest sp500 EPS of past 2 years and on top worsening data hinted more falls in q2- hence the sell off in Jan, exacerbated by rate hike fears
- whats propping up sp500 market now is 3q2016 eps is supposed to be a recovery of sp50 EPS - partly oil cos and partly seasonal + now you have increasing confidence that perhaps there's a growth shock arriving that may see EPS outperformance
- i linked last week FactSet's data about how US large listeds have been fabricating EPS via non GAAP earnings adjustments - to a degree greater than ever before in history. currently there's a 30% difference between GAAP and non GAAP eps for the DOW 30. Its normally 10%
- so what we are likely to see when a rate rise gets priced in - is large caps on high EPS will likely sell off. i think thats why US financials are a bad investment
- BUT the US equity market is an amazing place. If you look at it deeply you can see over the past 18 months entire sectors have in fact had a collapse - without destroying overall indices. biotechs are frequently 50-20% of former value, semi conducors largely about 30-40% of what they were.
- so, if the US actually does mount a strong domestic growth surge it may be surprising how long it is before a collapse - because sectors like semi conductors - prev the leader of the market - will go back to leading and provide support for overall indexes
- imo the % play here is go long Nasdaq, Russell, short DOW/sp500 - until you are sure the capitulation event is on
having said all that - the US markets gotten very excited about property related boom mark 2. Yet here in Australia we've had our own property related boom - and its done stuff all for anyone except landlords.
Property booms are nice for owners but they are a small sum game gdp wise because after one off surges in consturction benefit the higher rents eat into disposable incomes unless there is also strong wage inflation.
US needs to start making good paying jobs again. Thats the gdp gift that keeps on giving.
Thats manufacturing, tech and finance. All 3 sectors currently at low ebbs
